Note:

  • Do not use any outside research whatsoever. 
  • All research is contained within the case PDF. Please provide your own, original analysis. 

Read the case study PDF: Burberry’s new challenges in order to complete this assignment. The Case Study is available in the attachment.

WRITE YOUR PAPER FROM THE PERSPECTIVE OF CONSULTANT SENDING A PROFESSIONAL DOCUMENT TO SENIOR LEADERSHIP ANSWERING THE PROMPTS BELOW. MAKE THIS LOOK, FEEL AND SOUND LIKE A REPORT FROM A PRO (NO FIRST PERSON, NO CASUAL LANGUAGE (DON’T JUST USE BIG WORDS TO USE THEM, BE COMMUNICATIVE AND READABLE).  

Please answer the following (in a Case Study / written paper format):

  • Create a Porter’s Five Forces Analysis Diagram (this will be a diagram – see attachment)
    • This is not a design exercise, the boxes can be made in word, excel or a design program as you choose. Analysis is more important than an aesthetically appealing design. 
  • Perform a strategic analysis of of Burberry’s as follows:
    • Please make your work far more thoughtful and in-depth than the discussion board
  • Market / Market Domain (The Where)
    • Describe Burberry’s market and position within their market
    • Outline Burberry’s top 5 competitors and how they are positioned versus Burberry
  • Value Creation (The Why)
    • Describe Burberry’s key offerings and how they are positioned in their market. Are they positioned to succeed or are they facing risk?
      • You are encouraged to look at their brand as well BUT remember a great brand is built upon great strategy, understanding of customers (re: segments) and the delivery of quality offerings.
      • Pay attention to key segments throughout your paper as how Burberry approaches segments is everything to their marketplace strategy
  • Activity Systems (The How) 
    • Offer an overview of Burberry’s key activities (marketing, product development, channels (retail, digital), supply chain
    • Who are key stakeholders and partners for Burberry? (i.e. do they carry outside brands, private label, licensing arrangements, partnerships?)
    • What is Burberry’s retail strategy?
    • What is Burberry’s digital strategy?
    • Are there risk or problems you’ve observed in Burberry’s activity systems? 
  • Provide proof (from the case) where relevant by looking at the exhibits attached
  • Risk & Dilemmas Analysis
    • Analyze the unique success factors of Burberry’s luxury business and explain how it contributes to the brand’s image. 
    • Strategic dilemmas
      • How are external factors (changing competition, technology, buyer expectations) affecting Burberry’s ability to succeed?
        • Provide proof (from the case) where relevant by looking at the exhibits attached
      • How have internal decisions (choices Burberry has made) positioned them to compete and succeed? Have they done everything near perfect or have they left themselves open to problems ahead?
  • Should Burberry do anything differently as a result of your analysis?How are digital media (ecommerce, marketing) social media and bloggers affecting Burberry’s communications & marketing strategy and how they deliver customer experience?
  • Burberry is dealing with a changing world where fast fashion and experiential luxury are on the rise while the relevance of fashion shows and department stores is in question? Analyze this situation exploring these four variables assessing their potential impact and importance to Burberry’s future.
  • MOST IMPORTANT: Given all the analysis you have done so far (strategic analysis, the external and internal, dilemmas) – what are FIVE recommendations you would make to Burberry’s senior leadership team making sure to “connect the dots” to how this solves SPECIFIC issues you have uncovered. 
    • Be sure to look at your own analyses above and come with issues to tackle and detail how your ideas may make an impact. 

Important notes: 

  • Do not use any outside research whatsoever. 
  • All research is contained within the case PDF. Please provide your own, original analysis. 
  • Any use of outside research, discussion with anyone (including classmates) will result in a failing grade
  • Case studies are from the perspective of the information in the case. If you know in real life what Burberry ended up doing you cannot use this information. You are only to use information in the case to perform analysis or make recommendations.
  • References should be made to material taken from the case. (if you cite the case, mention the citation as you would any source that is not your own ideas). 

Here is important information that WILL IMPACT YOUR GRADE throughout this course.

  • Covid-19 / Pandemic impacts on strategy
    • You will usually be asked to make a minimum of 3 strategic recommendations in most assignments. The pandemic is NOT to be a core part of your strategic analysis UNTIL AFTER you have provided 3 examples that examine the business without regards to the pandemic. 
    • IF you choose to make Covid a central point, it will need to be your 4th recommendation (3 recs need to be non-pandemic related)
    • The reason / the “Why”: While the pandemic has clearly had global impact, it is vital you learn to analyze businesses, markets and strategies without only looking at the pandemic alone. The pandemic is a somewhat rare event and we want to make sure we exercise other forms of situational and strategic analysis as well. 
    • Grade impact: You will lose as much as a full grade level if your analyses all hinge on the pandemic alone.
  • Sustainability & influencer strategies are a given, mentioning them without research and market insights is the worst form of leadership… therefore they are NOT allowed unless specifically directed. 
    • If you want to use them, ask in advance and let’s decide if there’s a strategic reason backing their use
    • If they are specifically requested then they will be relevant to your answers and encouraged
    • The reason / the “Why”: Students have tended to simply use influencers or sustainability as suggested business strategies with no research or data backing them. Analyzing the impacts of sustainability is encouraged IF you are willing to do the research to back it up.
    • Obligatory use of “sustainability” or “influencer” will result in points loss – as much as a grade level
    • Never use first person (I, me, myself) in class writings. They will result in immediate loss of a grade level
      • The reason / The “Why”: We are here to write as future leaders so let’s “level up” our discourse such that we communicate at the most senior level possible. 
    • SPECIAL TIP: The answer is always…. always… always start with the consumer (namely customer segments) and creating value for them.
      • Value creation is always our goal
      • ALWAYS FOCUS ON SEGMENTS… become “customer obsessed”
      • Remember – demographics are not segments – we want to include everyone who shares the same drive and passion and demographics alone will rarely, if ever, capture those drivers. (see video for more commentary)

W17177

BURBERRY’S NEW CHALLENGES1

Marta Jarosinski wrote this case under the supervision of Professor June Cotte solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.

Copyright © 2017, Richard Ivey School of Business Foundation Version: 2019-07-15

By the time Angela Ahrendts left her position as chief executive officer (CEO) of Burberry in 2014,2 the
Burberry brand image had improved considerably. Ahrendts had successfully led the luxury fashion firm
during her seven-year term with the help of the company’s creative director, Christopher Bailey, who was
set to replace her as the next CEO. Over this same time, however, a number of changes within the fashion
world had a significant impact on the overall luxury fashion industry. Fast fashion, digital technology,
and new venues of communication changed the way the world’s leading luxury brands operated. The
industry did experience financial growth year-over-year.3 Burberry and other luxury brands continued to
be the industry trendsetters. However, the luxury companies were slowly losing some of their power and
control over their brand image, both artistically and financially. As the new CEO, Bailey had to consider
changes in Burberry’s business strategy that would best help the company adapt to this changing
environment.

BURBERRY’S HISTORY

The Beginning

In 1856, Burberry was opened in a small outfitter’s shop in Basingstoke, Hampshire, England, by Thomas
Burberry, a 21-year-old draper’s apprentice.4 Burberry’s customer base grew throughout the rest of the
1800s. However, it was the invention of gabardine—a breathable, waterproof, and tear-proof fabric—in
18805 that later proved to be a key development for Burberry, putting the company on the world map
within the apparel industry. “By the turn of the century, Burberry offered an extensive line of outerwear
for both men and women. The company designed hats, jackets, pants, and gaiters especially for hunting,
fishing, golf, tennis, skiing, archery, and mountaineering.”6 The business continued to grow with the
pioneering of the Burberry trench coat. In 1901, Burberry was commissioned by the War Office—a
department of the British government—to design a new uniform for the British officers. There had been
much debate over the identity of the first trench coat designer, with both Burberry and Aquascutum—
another British apparel company—claiming to have spearheaded the design of the garment.7
Nevertheless, this conflict did not hurt Burberry’s position and the brand grew in popularity.

Over the years, Burberry continued to gain public fame through both its quality design and celebrity
status. Burberry developed a reputation for quality through the involvement and use of Burberry products
in various expeditions, sporting events, and excursions. For example, Roald Amundsen and his team wore

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Burberry gabardine clothes and used Burberry gabardine tents during their 1911 excursion, when they
became the first people to reach the South Pole. Ernest Shackleton completed his Imperial Trans-
Antarctic Expedition in 1915 also wearing Burberry.8

On another front, the Burberry trench coat’s iconic fashion status was strengthened through its popularity
among famous actors. For example, Humphrey Bogart wore Burberry in 1942 in the Academy Award-
winning film “Casablanca.” Audrey Hepburn was also dressed in a Burberry trench coat in her role as
Holly Golightly in the 1961 blockbuster “Breakfast at Tiffany’s.”9

While the company established its reputation and its name, it also developed the Burberry logo and, with
it, the Burberry dream. The firm registered the “equestrian knight” trademark in 1909.10 In 1920, the
iconic “Burberry check” was registered as a trademark and added as a lining to the trench coats.11 The
check was incorporated into accessories in the late 1960s.12

Recent History

Over the years, Burberry’s public image began to change as the luxury status of the Burberry brand began
to diminish. In 1997, Rose Marie Bravo was brought in as CEO to restore the perception of the brand.13
Under Bravo’s leadership, the company’s $460 million14 in annual sales nearly tripled to $1.3 billion.15
Included in her transformation was the launching of the Prorsum collection, Burberry’s fashion-forward
runway line, as well as the building of Burberry’s presence in fragrance, accessories, children’s wear, and
home goods.16

When Bravo stepped down at the end of her contract period, Ahrendts replaced her as CEO, and
Burberry’s revenues tripled again to more than $3.1 billion,17 while the company’s stock price soared.18
Various initiatives drove this growth, including opening new retail stores,19 minimizing licensing,
outsourcing production, and solidifying control over design.20 Several clothing licenses were revoked,
including those in Spain and Japan, and the company bought out its franchise partner in China. These
moves, combined with new outsourcing of manufacturing, consolidated the power over the brand with the
central headquarters.21

To ensure a consistent brand image, Ahrendts hired Bailey, a promising young Burberry designer, as chief
creative director and required all Burberry products to obtain Bailey’s approval before they could be
included in a collection.22 Ahrendts was able to turn around Burberry’s brand image through centralizing
the design team in London, minimizing the use of the check pattern on the company’s products, and
leveraging the iconic trench coat.23

In addition to solidifying control over the brand and its design, Ahrendts’s focus on growing Burberry’s
digital presence was obvious:

Former colleagues say she stressed the growth of Burberry’s website when other luxury brands
shied away from e-commerce. She placed Apple iPads in stores, streamed Burberry fashion
shows live, and adopted new software to cut costs and improve profitability.24

In an industry that has been slow to embrace e-commerce, Burberry launched one of the first
luxury websites to offer full online sales to customers. The company actively engages in social
media with its Art of the Trench website and a collaboration with Google Inc. that encouraged
people to send digital “Burberry Kisses” around the world via email.25

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Burberry Now

Burberry experienced several years of consistent revenue growth and a general trend of income growth
from 2004–2014 (see Exhibit 1). When Ahrendts left, Burberry was a thriving luxury house. In spring
2014, Bailey became CEO of Burberry while retaining his role as chief creative officer.26 In order to
sustain the company’s growth and positioning, Bailey needed to ensure that he was both proactive and
quick to react to the changes brought about by Burberry’s market, the luxury industry, the fashion world,
and the general global market. He needed to take into account changes affecting the industry as a whole,
including the various luxury customer segments and their changing roles, the global customer market, fast
fashion, fashion shows, department stores, and the move towards experiential luxury. Further, Bailey
needed to consider the impact that digital technology had on the luxury market, and how Burberry’s
competition was approaching a digital environment. Bailey had to decide if any key changes in the
company strategy needed to be put into place.

CHARACTERISTICS AND TRENDS IN THE LUXURY INDUSTRY

Burberry competed in the global apparel, accessories, and luxury-goods market, which included clothing,
jewellery, watches, leather goods, and cosmetics. This industry was a subset of the personal luxury
industry and the larger luxury industry, which included apparel, accessories, cosmetics, wine and spirits,
cars, hotels, in-home food, out-of-home food, home furnishings, and yachts.27 A new part of the luxury
industry—experience-based luxury—was a growing segment of the luxury market. “People are spending
far more on luxurious intangibles such as safaris and vacations as consumers choose to splurge on
memories over handbags or watches.”28 With this cultural shift also came a growing demand for a luxury
in-store experience as an aspect of shopping for personal luxury goods.

The personal luxury market, valued at more than €250 billion29 in 2015, grew 13 per cent from 2014.30
For this market, the euro exchange rate played a significant role in the financial results and growth
forecast. There were two key reasons for this. First, the major personal luxury industry players were based
in Europe, the third-largest market for luxury purchases after the United States and Japan.31 Second, the
tax-free shopping offered to tourists visiting Europe—primarily from China and the United States, where
the currency was strengthened in comparison to the euro—supported sound growth in the European
market.32

Several important trends were evident in the market, and Burberry needed to understand and act upon
them. The first was a blurring of formerly strict pricing divisions between luxury and non-luxury goods.
In line with an increase in household purchasing power over the last few decades, prices of top-of-the-line
luxury goods experienced an upward trend (see Exhibit 2). Premium mass-consumption goods (trading
up), which were not previously considered luxury items, experienced a similar upward trend in price.
However, luxury entry products experienced a slight downward trend in price over the same period.
These shifts caused the price of premium-sector goods to overlap the price of luxury entrants, blurring the
separation between luxury and premium goods.33

A second important trend was the growth of online shopping at the expense of traditional brick-and-
mortar shopping in the United States and Europe. Although the online segment was still small, online
sales achieved a 7 per cent share of shopping revenue in 2015, nearly doubling online penetration since
2012.34 Any luxury brand that wanted to stay competitive needed to recognize this trend and incorporate
online sales into the brand’s future sales strategy.35 Bailey seemed intent on continuing Ahrendts’s
strategy of weaving online into everything Burberry did.36 This was clearly communicated in the CEO’s
letter within the 2014/15 Burberry financial statements:

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The merging of our online and offline worlds remained a hallmark of our efforts here, as we
sought to provide outstanding experiences to a luxury customer who is ever more global, and ever
more digital. Initiatives including the relaunch of our mobile site and the roll-out of our “Collect-
in-Store” programme resonated strongly, as did the expansion of third-party digital
partnerships—giving customers on leading platforms globally a more authentic experience of our
brand. And we continued to invest in enhancing our data and insight capabilities, knowing that
the key to serving our customers better is understanding them better.37

For Burberry to remain competitive within the personal luxury market, its strategy needed to consider and
align itself with industry trends. Bailey and his team needed to decide if Burberry would continue to
pursue a more risky but potentially rewarding leadership position in the digital environment and what the
company needed to do to improve its future positioning.

Luxury Customer Segments

The luxury industry consisted of three customer segments: absolute, aspirational, and accessible.38 The
absolute segment had the smallest number of individuals yet represented immense purchasing power per
individual customer. These customers were defined as ultra-high-net-worth individuals. To these
customers, money was not an issue. The demand from this group was not strongly affected by the
economy; therefore, their demand was stable. The high purchasing power per customer in conjunction
with the group’s higher requirements in terms of customer service and quality goods meant that their
needs could not be overlooked. These customers expected an extremely high-quality experience, along
with perfect goods and services.39

Absolute segment members appreciated the brand history and heritage. They wanted to own pieces that
were unique and emphasized their elitism. They shopped for ready-to-wear and bespoke (personalized or
tailored) haute couture goods. This segment sought discreet goods that emitted quality and understated
opulence,40 while placing value on high aesthetic content and extreme quality. This group created word of
mouth and supported relevant initiatives within its limited circle. Therefore, effective communication
with the absolute segment revolved around the group’s interests, such as exclusive watch collection
discussions by a watch creator or relevant humanitarian initiatives. Collectors within the group relied on
the value of the product and expected devotion, expertise, and discussion about the service provided.41 An
emotional, distinctively exclusive shopping experience set luxury brands apart from the rest of the
industry, and luxury fashion houses had specific client service teams that catered only to this group,
because privacy was crucial.42

The second customer segment was the aspirational group. This group included celebrities, professionals,
and business people with a high amount of disposable income. Though they had high spending power,
some individuals from this segment would trade down or not buy at all during an economic downturn.
The aspirational group fathomed the lifestyle of the absolute segment, aspired to it, and looked for upward
integration. To reach this group, the brands needed to “re-create the emotional and creative world of the
brand, containing the cultural and psychological references that justify the price.”43 This segment valued
some level of exclusivity, particularly in the buying experience. At the same time, the aspirational group
was still aspiring to be recognized by others and become associated with luxury. Therefore, brand
recognition—particularly the recognition of the exclusivity of the brand—was important. This segment
was best reached through an environment that gave the impression of limited accessibility, such as club
marketing or special privileges. Club marketing referred to marketing to high-net-worth individuals
gathered at events for a common interest; special privileges included services such as concierge service.

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Both of these were means of creating the exclusivity while clustering together the widespread network of
this segment.44 This group valued variety, quality, and faster-changing product lines, as well as style,
artistry, design, and performance.

The third group of luxury shoppers was the accessible segment. This group was made up of middle-class
and upper-middle-class customers. The emergence of this group proved that “luxury is no longer the
embrace of the kings and queens of France but the mass marketing phenomenon of everyday life.”45
Accessible segment members sought to differentiate themselves through the status of the brands they
wore, although their income level limited their accessibility to the luxury goods they could purchase. The
social aspect was important to this group46 because a luxury good symbolized a membership badge and
the ability to show status and wealth by association with the affluent class. Accessible segment members
often chose goods that explicitly showed the brands, whether through distinct brand designs, monograms,
logos, or brand symbols, but did not expect personalized service. Therefore, immersing marketing and
customer service was an effective communication method.47 Due to the individuals’ limited spending
power, price was an important consideration, so the desire to be associated with the affluent class led
some group members to purchase counterfeit goods. This became an especially important factor as the
prices of personal luxury goods went on a rising trend. “From 2002 to 2012, the prices of their handbag
offerings increased by an average of 14 percent each year . . . as a result, many luxury brands have
introduced smaller versions of their best-known bags—with a scaled-down price tag to match.”48

Over the years, the aspirational segment grew at a faster rate that the accessible segment, which grew at a
faster rate than the absolute segment.49 This change in overall market demand affected how luxury brands
needed to market their goods in order to secure sales while simultaneously protecting their brand image.
In conjunction with this, “the average consumer was also far more educated and well-travelled than a
generation ago and had developed a taste for the finer things in life.”50 Each customer segment was more
knowledgeable about luxury brands, their quality, where they were produced, and the image the brands
portrayed.

Bailey needed to consider which—if not all—customer segments should be Burberry’s focus going
forward. He needed to consider how industry changes would influence the best approach for each group.
Bailey and his team also needed to plan the impact of any changes on various aspects of the business:
supply chain, marketing, positioning, and product mix.

THE EMERGING MARKETS

In 2015, North and South America was the second-largest segment of the personal luxury industry,
accounting for 24 per cent of the market’s total value, and Europe was third largest at 18 per cent.
However, these established regions were overpowered in size by the Chinese segment, which made up 31
per cent of the market and played a key role in the growth in luxury spending worldwide.51

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China

Though not yet quite as established as the European and U.S. markets, the Asian market—specifically,
the China region—was becoming the largest luxury customer segment.52 An economic boom spanning
several decades had led to a growth in the wealthier Chinese population and, consequently, a growth in
luxury sales.53 Chinese customers were borderless customers who shopped as tourists. Chinese shoppers
spent more abroad than they did at home. Mainland China accounted for only 20 per cent of their global
purchases, a trend that54 was further supported by international policies encouraging the Chinese to spend
more abroad. “Globally, governments are amending visa policies to attract Chinese tourists.”55

After 2012, the Chinese mainland luxury market experienced a slowdown56 due to an economic slump,
anti-corruption measures on gift giving, and the devaluation of the Chinese yuan.57 However, this had
little impact on borderless Chinese customers. “The average spend by Chinese shoppers in Europe
processed by Global Blue over the first six months of the year [2015] was €981 (US$1,112), a 7 per cent
increase from a year ago.”58

Luxury market experts had identified some common characteristics among Chinese luxury customers. On
an individual level, the Chinese heavily emphasized physical appearance. At a social level, the Chinese
luxury consumer, compared to the largely individualistic Western consumer, was strongly influenced by
social norms. The collective Chinese consumer attributed much value to recognizable brands.59 However,
over the years since the Chinese boom, the Chinese luxury customer was becoming more and more
sophisticated, having higher expectations of the products’ quality and service and placing less importance
on superficial aspects.60 Although the total population of Chinese luxury shoppers had increased, the
majority of the luxury purchases were still made by the upper-class segment, which made up about 4 per
cent of the population but contributed approximately 74 per cent of Chinese luxury-goods sales in 2015.61
Therefore, an understanding of this top tier was crucial for a luxury brand’s success.

Brazil, Russia, and India

The industry could not afford to ignore the other three major emerging national economies that made up
the so-called BRIC group: Brazil, Russia, India, and China. Both Brazil’s and Russia’s market growth had
been hindered by political and economic uncertainty within these countries.62 On the other hand, India’s
luxury market’s growth rate of 13 per cent was higher than that of any other BRIC nation,63 including
China.

Each of these three regions had unique customers:

• The Brazilian market was growing, but the wealthy market’s long-time trend of spending abroad,
combined with high tariffs in the country, limited the market’s expansion.64

• Russian customers had knowledge and experience in luxury and expected tradition, modesty, and
wealth. However, they were willing to spend more for valuable products to show off their wealth.

• In contrast, Indian luxury consumers were value-conscious and were always looking for stylish and
aesthetic products. Because craftsmanship and value were important to relate to Indian consumers, it
was challenging for luxury brands to enter and develop business in the country.65

Burberry had established specific sales trends with its business operations and strategies in each region
(see Exhibit 6). However, future market trends needed to be considered when making strategic decisions.
Bailey had to consider and predict the magnitude of these emerging markets, their role in the personal

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luxury industry’s future, and the importance of these decisions on each market. He needed to take into
account the ever-growing global customer and how Bailey’s ultimate decisions would affect the
customer’s brand perception.

THE LATEST CHANGES TO THE LUXURY INDUSTRY AND ITS ENVIRONMENT

A Challenge to Tradition: Fast Fashion

Fast fashion brands (short-shelf-life fashions produced very quickly in response to trends) revamped the
fashion industry starting around 2000.66 These brands—particularly Zara and H&M—used their strengths
in supply chain and customer understanding to fill a void of speed that was apparent in the industry at the
time, asserted by slower and smaller scale production luxury fashion and couture houses. Unlike other
affordable fashion retailers who followed a reactive strategy to the luxury trends, fast fashion brands
“pioneered a different business model, predicated on the idea that store purchases are the best indicators
of what consumers want, coupled with localized sourcing for more than half of its products.”67

Thanks to their unique strategy, fast fashion brands mastered the ability to produce fashions seen on the
runways in a matter of weeks, with very little or no marketing budget. For example, Zara’s operations
were able to succeed by relying on its advanced supply chain, non-focused style, enormous stock
selection, and coveted store locations next to top luxury and fashion streets around the world.

Though sourcing from Spain and Portugal is more expensive, the supply chain is shorter, and the
company can react more quickly—typically in a matter of weeks—to new seasonal trends. As a
result, Zara does not have unwanted inventory, and rarely lowers prices. The genius of this model
is that it picks up on every trend, but is never associated with any one style: the chain offers
something for everyone, and the enormous selection, with literally thousands of options, varies as
frequently as every week. Unlike other fashion brands, Zara does no advertising whatsoever,
choosing to rely instead on expansion, with chic locations in more than 73 countries, and
aesthetically appealing shop window displays.68

Fast fashion brands did not approach the fashion market by competing to be the style leaders, replace
luxury brands, or increase their own margins. Instead, fast fashion shaped the phenomena of mixing and
matching high- and low-priced items. As this new approach to shopping began saving customers money
and providing them with additional options, particularly in trending items, most customer segments
quickly gravitated to fast fashion companies. Due to affordability, fast fashion allowed ongoing personal
transformation at a mass-market level.69 Stores also provided customers with a one-stop shopping
experience by offering an array of fashion products, including makeup, accessories, and personal
grooming products, in addition to their ready-to-wear line.70

As it became apparent that the fast fashion organizations were here to stay, many luxury brands took a
strategic “if you can’t beat them, join them” approach. Luxury brands, including Lanvin, Sonia Rykiel,
Jimmy Choo, Karl Lagerfeld, Stella McCartney, and Viktor & Rolf,71 each collaborated with H&M to
create a limited edition collection. This collaboration offered advantages to both H&M and the luxury
brands. H&M gained acknowledgment by high-net-worth shoppers, and the luxury brands grew their fan
base, which paved the way for a larger market of aspirational customers for these luxury brands.72

Luxury fashion houses were also influenced by the entry of fast fashion to rethink and make changes to
certain aspects of their strategy. In response to fast fashion, luxury houses increased the number of
collections they produced as well as the speed with which the collections moved from the fashion

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runways to the shop floor. They invested in modern production techniques and worked on developing
better-managed supply chains. Through this, they were capable of delivering—on an annual basis—at
least two women’s ready-to-wear collections and two women’s couture collections, as well as pre-fall,
resort, menswear, and accessory lines. The fashion houses also increased their stock selection, in both
their online and physical stores.73

The evolution and change for the luxury houses in response to fast fashion came at the cost of capital
injections and loss of high profile designers. Celebrity status designers resigned from prestigious
positions, accrediting their departures to the pressure of doing several shows a year, which did not allow
for a work atmosphere where their creativity could flourish.74 At Burberry, Bailey needed to consider
what sort of reactive and proactive steps he needed to take in terms of competing with fast fashion. He
wondered …

PPT 1-1

Marketing Management

Week 3:
Building Strong Brands:

How to STP (Segment, Target & Position)












● …

CONFIDENTIAL

Segmentation Methods

Demographics are not segments

PPT 7-7


○ Oxford: the changing number of

births, deaths, diseases, etc. in
a community over a period of time;
the scientific study of these
changes

○ M-W: the statistical
characteristics of human
populations (such as age or
income) used especially to
identify markets

○ Investopedia: Demographic analysis
is the study of a population based
on factors such as age, race, and
sex. Demographic data refers to
socio-economic information
expressed statistically, also
including employment, education,
income, marriage rates, birth and
death rates and more factors.

PPT 7-9

PPT 7-10































CONFIDENTIAL

Segmentation Tools

If you want to know what people
think try asking.
Avoid the bias of guessing or
going by your instinct or
opinion alone
Care about your customers
and what they think

Personas: Use them with caution

● Fictitious but archetypal
● Helps teams visualize

○ Creates direction for goal setting

● Neither tell us why this person
has chosen this product

○ Demos are not segments
○ Extrapolating based on

correlations

● “Network” influences
○ Culture, Groups

● Gives us an incomplete picture

Be careful how you ask
● Remember The Homer
● Designed by “Joe Average” to

appeal to everyone
● Hurdles:

○ Customers will not always tell you
their true drivers

○ Customers may want things that are
not achievable

○ Customers may express a high desire
for things they do not truly value and
would not pay for (WTP)

● Putting a driver as the name on the tin hints at many factors
○ Behavior, Lifestyle, Use-cases, Attitudes

● iPhone: Social Influencer (Segment) wants to Reach Followers (Driver)
which leads to endless use-cases (Social messaging, social “timeline”
sharing, SMS, photo sharing, short video (TikTok), live streaming, etc)

● Demographics are not segments: Starbucks as the “third place”











CUSTOMER

CUSTOMER

CONFIDENTIAL

Target your best segments













CONFIDENTIAL

Positioning

BUMT 4600

Marketing Management

Module 2 (for Video Lectures 1 and 2)

Connecting with Customers: What to offer and to whom

Professor London Monty

Quick jog down memory lane

PPT 1-2

Simply put… Strategy is Where, Why & How

Where (Market): Understanding where the market is headed and trends within

The Why (Value Creation): Should focus on value proposition to customers and profit opportunities for the firm.

The How (Activity Systems):

If you don’t know where you are going and why it’s impossible to decide how you want to get there.

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Add back the annotations

Risks lead to Strategic Issues

Common risks we examine:

Industry & macro changes

Competitor action and reaction

Changing consumer behavior

New and existing substitutes

Positioning and product quality

Internal needs and challenges

Investor expectations

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Add bullet examples of risk areas

5C-STP-4P Model

PPT 1-6

Defining Business Strategy

The (Product) Market Investment Strategy

Value Creation

Customer Value Proposition

Look at strategic strengths & weaknesses

Assets and Competencies

Activity Systems

Put everything into place

Strategic Market Management 7th Edition – David Aaker

Putting a Strategy in Place

PPT 1-7

Prof. Monty’s

Growth Strategy Model

CONFIDENTIAL

Step 1: Choose a market

Porter’s Five Forces

Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers.

The first is the threat of intense segment rivalry. A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It’s even more unattractive if it’s stable or declining, if plant capacity must be added in large increments, if fixed costs or exit barriers are high, or if competitors have high stakes in staying in the segment.

The second is the threat of potential entrants. The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter the industry, and poorly performing firms can easily exit.

The third is the threat of substitutes. A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases in these substitute industries, prices and profits are likely to fall.

The fourth is the threat of buyers’ growing bargaining power. A segment is unattractive if buyers possess strong or growing bargaining power. Buyers’ bargaining power grows when they become more concentrated or organized, when the product represents a significant fraction of their costs, when the product is undifferentiated, when buyers’ switching costs are low, or when they can integrate upstream. To protect themselves, sellers might select buyers who have the least power to negotiate or switch suppliers. A better defense is developing superior offers that strong buyers cannot refuse.

The fifth force is the threat of suppliers’ growing bargaining power. A segment is unattractive if suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful when they are concentrated or organized, when they can integrate downstream, when there are few substitutes, when the supplied product is an important input, and when the costs of switching suppliers are high.

10

A word on SWOTs

Situation analysis tool that supports 5Cs & PESTLE

(Political, Economic, Social, Technological, Legal and Environmental factors)

Feel free to do them

SWOT value is up to you

Growth Strategy: The Why

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Porter’s Generic Strategies

Cost Leadership

Your offering as well as bundles and related products

Differentiation

Testing to get the price right

Willingness-to-Pay (WTP)

Focus

Messaging

Offers

Add one step before The How

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PPT 1-15

Simply put… this is still WHERE, WHY, HOW

WHERE: Market and what’s happening (dynamics)

Porter’s Five Forces

WHY: Value Creation

Find out who your audience is and give them what they want, need where there’s a willingness to pay (an offering for a value exchange)

HOW: Activity systems and the things we need to do to deliver a great offering.

Remember to examine at strategic strengths & weaknesses

Strategic Market Management 7th Edition – David Aaker

Prof. Monty’s

Growth Strategy Model

CONFIDENTIAL

End of Lesson

PPT 1-17

Creating Valuable Customers

Module 2

Connecting with Customers: What to offer and to whom

Professor London Monty

PPT 1-18

Deliver an Offering: Gotta give ‘em what they want

Always ask: Who is your audience?

Wants / Needs / Pain Points/WTP

Offering

Fancy word for product, service, experience or whatever you want to deliver to the market

A word on “white space”

It’s often white space for a reason. Answer why it matters and to whom

Consumer Behavior – Sociological View

Cultural factors

Culture writ large

Subculture

Social Class

Falls within the 5Cs – Situation / Context (PESTLE)

Social Factors

Reference groups

Cliques

Family

Roles and status

Reference Groups

Membership Groups (Reference, Primary, Secondary)

Aspirational Groups

Dissociative Groups

Opinion Leader

Family

Personal Factors

Personal factors

Age/stage in life cycle

Occupation and economic circumstances

Personality and self-concept

Lifestyle and values

A model from your book – Ch 5 (Fig 5-1)

Customer Perceived Value

Customer-perceived value (CPV)

The difference between the prospective customer’s evaluation of all the benefits and costs of an offering and the perceived alternatives

Total customer benefit versus total customer cost

Remember:

“What I give” < or = What I get”

Framing value

Getting to satisfaction and looking back

Jobs-to-be-Done

Product Delivery/Fulfillment

Measurement

Mix & Metrics

Set Goals

Where (Channels) should we go to accomplish our goals?

How do we measure success?

Examples from your book:

Sales metrics

Customer readiness to buy metrics

Customer metrics

Distribution metrics

Communication metrics

Iterate (Rinse, Wash & Repeat… and improve)

From your book: Buying Decision Process

Six Stages

Problem recognition

Information search

Evaluation of alternatives

Purchase decision

Postpurchase behavior

Becomes

Food for thought: Who said the customer has a “problem”? Who said the customer wants to do “research”?

The Jobs-to-be-Done (JTBD) View of Customer’s Mindset

An alternative method to “Buying Decision Process”

Instead of stages we have emotions & actions:

First Thought

Active Looking

First Encounter

Decision sets

Personal Processes

Social interactions

Communicating experiences

Events Occur

Buying

Consuming

Satisfaction (or dissatisfaction) and looking back

We are social beings

Examples of social structures

Initiators

Users

Influencers

Deciders

Approvers

Buyers

Gatekeepers

Not to be confused with Social Media

Decision Sets – from your Book fig. 6-5

Develop a Marketing Funnel

Optimizing Funnel Performance

A word on customer relationships

Touchpoints & Tracking

Customer Relationship Management (CRM)

Purpose:

Attract & Retain

Personalize – requires great segmentation

Empower customers: Permissions & Privacy

Maximize connection – try to capture Word-of-Mouth (WOM)

Reduce Churn – Loyalty Programs

Retarget & Winbacks

No limits to positive impacts

Requires great digital back-end systems

Retention:The customers you keep are as important as the new customers you win

Customer Lifetime Value: The Easy Way

(aka CLV aka LTV or Lifetime Value)

A word on LTVs

Sets expectations

Tells us what customers generate over a long period to see if it’s better than our costs

That’s value (apparently)

At 1x you payback variable costs

Startups should look at 3x

Compare LTVs among industries / similar companies

You can have many LTVs

Master LTV

LTVs for each channel

LTVs for segments

LTVs for different types of customers

LTVs for campaigns

Food for thought

Some don’t measure all costs such as acquisition costs (just gross margin)

LTV does not tell you the payback period

End of Lesson

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