Good Example Of Report On Abercrombie And Fitch: Expanding Into The European Market
The City and Date where it is located
Incorporated in 1996, Abercrombie and Fitch Co. (A&F) is a departmental retailer operating stores and online shops for direct to consumer business. Abercrombie and Fitch, sells an assortment of merchandise, through its branches, including casual sportswear clothing, personal care products, and accessories for women, men and children. In-store merchandise is sold under the Abercrombie and Fitch, Abercrombie Kids, and Hollister brands. Girls merchandise including bras, sleepwear, and personal care products are sold through the Hollister stores and online under the brand name, Gilly Hicks. The company operations are in three segments: Online Stores, United States Stores, and International Stores. As of December 2014 Abercrombie and Fitch had 1006 stores in operation, 843 in America and 163 overseas (Reuters.com, 2015). Abercrombie and Fitch have 49 websites in operation; each brand has its website, accessible in nine languages. Additionally, the direct-to-consumer stores, ship merchandise to over 120 nations and over seven major currencies are accepted (Reuters.com, 2015). Abercrombie and Fitch expects a positive growth for all its brands by expanding into Europe. This report covers the expansion marketing and communications strategies for Abercrombie and Fitch expansion into European market.
Strategic Expansion Objectives
Fast Fashion demands that retailers keep increasing the number and location of their stores either through direct ownership or franchises (Tokatli, 2007). Abercrombie and Fitch intend to expand into the European market to take advantage of their iconic brands to build a lucrative and sustainable business. The company aims to increase their iconic brands appeal to the European market, with a significant market penetration. Abercrombie and Fitch are looking to increase the number of their stores by opening more stores in the European market. Expanding to new markets is fundamentally a reaction to the prospects accessible in that market (Dawson, Larke and Mukoyama, 2006). Abercrombie and Fitch will be able to increase their fast fashion competitive position by expanding into the European market.
Strategic Positioning Analysis
Choosing to expand to a new market requires that the company conducts an internal evaluation of strengths that it will build on in the new market. A strategic positioning analysis of Abercrombie and Fitch identifies brand image, in-store experience and direct-to-consumer some of the critical strengths that will help in its market expansion.
The brand image of Abercrombie and Fitch the most valuable asset for the company. Successful branding and positioning have enabled the company to sell their apparel at a premium. Despite many of its competitors lowering prices due to a sluggish economy, Abercrombie and Fitch has never lowered its prices. According to the company philosophy, lowering prices tarnishes the brand, and the company should only worry about the quality of their products.
Abercrombie Fitch has perfected the art of using in-store experience as their marketing strategy. In-store experience is considered the best medium for Abercrombie and Fitch to communicate the ethos of each brand. Abercrombie and Fitch stores, play music and are scented, furnished, and fitted with lighting that reflects the brand of that store . Subliminal marketing is done through meticulous placement and presentation of merchandise. The standards and attention to detail are maintained in all stores, ensuring that the in-store environment is constituent regardless of where the store is located.
Through its online stores, Abercrombie and Fitch can reinforce their brand presence. The in-store experience is extended online with well-crafted websites to ensure consistency. Through this websites and social, the company has been able to project its brand even in countries where it does not have a physical presence.
Abercrombie and Fitch will be able to leverage on these strategic positions in their expansion into the European Market. Abercrombie and Fitch have followed an expansion strategy founded on the original concept replicating their success factors in the new market. Replication factors include store format, product offering, marketing strategy and target market. Successful multinational companies adapt their success formula to fit the new market conditions. The basic principle of the business is the same in all markets, but adjustments are necessary to cater to the needs of the local clientele. Market Entry methods determine whether the expansion plans of a company will be successful or not. Normally, the risk that are retailer is willing to take determines their entry method.
Abercrombie and Fitch have used strategic marketing to position itself successfully as the leading fast fashion retailer in the United States. The company marketing strategies are conventional and targeted to its prospective customers. Analysis of the lifestyle, needs, wants, demands, perception, cultures, economic situation and spending habits of the consumers are thoroughly analyzed. The Analysis enables the company to develop a strategic and tactical marketing plan. Unlike its competitors who use different themes to advertize their merchandise, Abercrombie and Fitch have leveraged on the sexual appeal to advertising its products (Lepore, 2011). Abercrombie and Fitch use segmentation, targeting and positioning strategies to market its products. Europe is a dynamic market with each country having its unique needs. Therefore, the best marketing strategies for Abercrombie and Fitch for this market should be market segmentation and product positioning.
There are three important factors of strategic marketing that should be considered carefully when developing a marketing strategy. They are segmentation, targeting and positioning, with segmentation being the most important. Without market segmentation, there is no marketing strategy (Onkvisit and Shaw, 2009). The following are benefits of segmentation: It increases the company’s focus on the market. It increases the competitiveness of the company. It is used in market expansion. Customer retention is achieved through segmentation. With the segmentation, the business can communicate effectively with its customers. Segmentation increases the profitability of a company. There are several marketing strategies that Abercrombie and Fitch use to market its brands in the United States. This report discusses different strategies that Abercrombie and Fitch should use in Europe.
Demographic segmentation will help Abercrombie and Fitch to divide the population into manageable specific groups using Age, gender, and income variables. In the United States, the company has focused on high-end customers. However, demographic Segmentation in Europe will have to be done differently for the company to be successful.
In psychographic segmentation people's lifestyles, interests and opinions are used to curve a market segment. Psychological attributes of a customer’s buying habits are taken into account during segmentation. Additionally, social status is a key factor in this type of segmentation. Abercrombie has successfully used psychographic segmentation in the United States, with its “classic cool” theme resonating well with high-end customers . To retain the brands image of casual luxury, Abercrombie and Fitch should use this marketing strategy in the European Market.
Consumer behavior is used to subdivide the population according to their response, use and knowledge of a product. Consumers evaluate several dynamics before they make the decision to purchase a product (Park and Sullivan, 2009). Segmenting consumers according to their behaviors will help the company understand them better and respond to their needs. In the United States, the company using behavioral segmentation to target consumers during different occasions like Christmas and Easter. Teens are also segmented using this criterion. Behavioral segmentation should be done in the European market, to accelerate market penetration.
In Geographic segmentation, the market is subdivided into geographic units mostly based on a common language, culture, and location. Geographic segmentation should be the first strategy that Abercrombie and Fitch will use Europe. Europe is vast, multilingual and has different cultures. Clustering can be done based on language for example Belgium and Holland share the Dutch language. The Abercrombie and Fitch brand is recognized in Europe in areas where they do not have a physical presence. Geographic segmentation will assist the company to leverage on the brand recognition.
Top level managers develop a company’s product policy to provide guidelines for product planning and expansion. A sound product policy is essential for every business (Andrykiewicz, 2014). The following are the objectives of a good product policy: to keep the company’s products in the market. To provide a growth plan for the products, in line with company’s long-term plan. To provide flexibility so that changes can be done when new dynamics in the market emerge. To ensure there is maximum utilization of the company’s resources. Abercrombie and Fitch have developed a unique long-term plan and management for its merchandise to maximize on consumer satisfaction.
Abercrombie and Fitch have developed different product brands with their unique style, associated with the target market. The company policy is to have these segments in operation and currently there are no plans to change the brand mix. This policy has worked well in the United States, and it should be used in the European market to ensure standardization of the brands, across the markets. This unique product positioning will work in the European market. Abercrombie and Fitch have the following brands.
Abercrombie and Fitch
Abercrombie and Fitch is a high-end casual luxury brand that has its roots in the Ivy League heritage and East Coast traditions (Singer, 2015). A clean and rugged inspiration is the signature of this brand embodying the lifestyle of the American young adults (Nytimes.com, 2015). Subtle classic and sexy messaging have made the brand stand out (Singer, 2015). The brand has an idol following and respect making it timeless and cool. Under this brand, there are jeans, dress shirts, fragrances, shorts, and sports apparel for the age of 18 – 22. Abercrombie’s signature cologne branded Fierce, is a highly successful segment of the Abercrombie and Fitch brand (Abercrombie.com, 2015). The Fierce Cologne has been the best-selling cologne in the United States for a number of years. There are more than 300 dedicated store for this product line.
Hollister is a brand inspired by the Southern California laidback lifestyle. The brand is marketed for the young, adventurous and humorous. The product line is targeted for the ages of 14-18 and pricing is lower compared to the Abercrombie and Fitch Brand. Hollister has been very successful and as of December 2014, it was the highest earner for Abercrombie and Fitch, with over 500 stores (Referenceforbusiness.com, 2015).
A privilege and prestigious brand modeled along the line of the Abercrombie and Fitch brand but targeting kids. With its rugged, and casual vintage style the brand is regarded as the ultimate American cool for kids. Abercrombie Kids caters for the age group of 7 – 14, and has over 185 stores. It is the third highest earning brand for Abercrombie and Fitch, accounting 11% of the company’s revenue.
An exclusive underwear and loungewear brand inspired by the Sydney, Australia free spirit lifestyle (Money.cnn.com, 2015). It is a women brand for the ages of 18 and above, with similarities to the Victoria Secrets brand. Gilly Hicks style is casual and sexy, sold in over 19 stores.
As a marketing strategy, Abercrombie and Fitch will be using the differentiated pricing policy in the European Market. This strategy is different from the pricing policy used in the United States. Price differential in the market can be critical to the company’s success (Vernasca, 2003). Differential pricing will enable the company to benefit from the unique valuation of each customer by offering different prices to different customers for the same product (Eckert, 2011). Airlines are the most notable users of the differentiated pricing policy. The different prices derived from differential pricing results in increased revenues from higher prices and contributes to the growth by selling to more customers through discounts. Abercrombie’s multi-price strategy should have pricing plans made of a value-based price, product versions, an array of price and new pricing plans.
Price differentiation policy has inherent risks that Abercrombie and Fitch should evaluate. Consumers may find the cost of exclusivity to be exorbitant. This occurs when the difference in price between the standard and exclusive product is very high (Colombo, 2010). In such a scenario, the company should evaluate the level of exclusivity offered. Is it too high than what the consumers’ desire?
As trends evolve, a company’s methods of differentiation may become obsolete, providing no value to the customers. The questions Abercrombie and Fitch evaluate are: the value of prestige and how long an exclusivity will last before customers outgrow it.
Knowledge changes the customer’s assessment of the value of a company’s pricing strategy. By and By, customers may perceive the product they buy at an extra cost holds no added value as they gain more knowledge about similar products in the market. This risk is best illustrated by the predicament of IBM. Initially, an IBM branded computer had more value to the customers. However, with the emergence of cloned computers, this position was challenged. Customers discovered that the features and all computers were similar, but the clones were selling at a cheaper price. They no longer associated the IBM brand with a value; IBM sales dropped to very low volumes.
The fourth risk associated with differentiated pricing is counterfeiting. Companies with differentiated pricing models are often the victims of counterfeiting. Counterfeiters tempt customers with differentiated features at reasonably low prices. However, Abercrombie and Fitch should not be overly about counterfeiting; Europe has very robust anti-counterfeit laws and enforcement agencies.
DISTRIBUTION POLICY Abercrombie and Fitch do not associate much with other companies, preferring to have an exclusive distribution channel for its products in the United Sates. The philosophy of the company does not agree with having their products resold by other retailers or distributors (Co., 2015). Exclusive distribution practices seek to minimize or eliminate competition. Although the exclusive distribution is had to pull off, when successfully executed it offers numerous advantages to the company (Pearson and Marshall, 2006). Abercrombie and Fitch should use this exclusive distribution in the European market for the following reasons.
When a company dominates the market its power to negotiate for exclusive deals is increased. Abercrombie and Fitch have vast resources and distribution capacities, which it will use to its advantage to negotiable for cheaper deals from suppliers. Exclusive distribution will help in accelerating their expansion and give the company better economies of scale.
Exclusive distribution will enable Abercrombie and Fitch project and retain the exclusivity of their brands in the European Market. Exclusive distribution creates an illusion of prestige even when there are other similar products on the market. Abercrombie and Fitch will leverage on this strategy in price differentiation.
In using exclusive distribution, Abercrombie and Fitch will be able to achieve maximum efficiency by optimizing their supply chain. When a company has no control of its distribution channels, making changes takes a lengthy process and time. Due to its size and already existing distribution channels in the United States, Abercrombie and Fitch will have minimal problems in doing exclusive distribution in Europe.
In the retail business, exclusivity gives the business a competitive advantage. Exclusive distribution gives the retailer credibility to the customers; they are sure that they are getting the right merchandise. With exclusive distribution chances of counterfeiting are reduced significantly.
An effective communication strategy will Abercrombie and Fitch to not only meet its business objectives, but also communicate effectively with the market. The European Market is different from the United States market and will need a different communication policy from the one Abercrombie, and Fitch uses in the United States. A good communication policy has several key elements that must be included, during its formulation (Communication Policy, 2002). Abercrombie and Fitch should consider the following elements when formulating its communication policy for Europe.
Statement of Purpose
Every communication policy should start with the statement on why the company has developed the strategy. The statement of purpose normally not detailed, it is used for reference and reminder for the company staff.
Current Situation of the Company
In the introduction, Abercrombie and Fitch should clearly but briefly state what the company does, and its areas of operation. The company should look at what has worked in their United States operations and adopt that for the European Market. The company should use PESTLE and SWOT analysis tools to analyze their current situation. In PESTLE analysis, all Political, Economic, Social, and Technological factors that could affect the operations of Abercrombie and Fitch should be listed. In the SWOT analysis, the Strengths, Weaknesses, Opportunities, and Threats should be listed. A competitor analysis should also be done; it will help the company to understand its current position in the market.
Organizational and Communications objectives
A good communication policy reflects the complete organizational plan of the company. The communication plan should help in the delivery of the overall vision, core values and objectives of the company. Abercrombie and Fitch should ensure that the communication policy does not contradict the overall objectives of the organization. This section should clearly set out the fundamental messages that the company wishes to communicate. The principles of communication should reinforce core values of the company.
Both external and internal audiences should be described in details. For Abercrombie and Fitch, this should include customers, suppliers, staff, shareholders, regulatory authorities, governments and board members. In streamlining the process, an in-depth analysis of the target audiences, should be done. Drawing a plan will help to prioritize the communication work of the company. It is important for Abercrombie and Fitch to establish where most communication resources will be expended.
The communication objectives should be broken down into appropriate messages, targeting each of the identified audiences. For Abercrombie and Fitch the audience with the highest priority is the customers, they should targeted with appropriate and relevant messages. A continuity in the messages should observed, and every message should reinforce the key company values.
Key Communication Methods
It is important for Abercrombie and Fitch to identify the most effective channels to communicate with its audience. An internal analysis of the available channels should be done to establish the best channels to communicate. A communication plan is linking the audiences, channels and messages should be drawn.
After identifying the audiences, messages and communication channels, Abercrombie and Fitch should then draw a plan (table) indicating the main communication actions, budget and resources apportioned to delivering the policy. Timescales and milestones should be included in the plan. Specific publications, events and projects that are known should be emphasized.
Press or Public Relations Plan
Abercrombie should identify how the company wishes to use the media for raising the company profile. The plan should be linked to the overall communications strategy.
Abercrombie has an extensive online presence and well-executed strategy; this should be adopted for the European market.
Crisis Communication Plan
Every company should have a clear crisis communication plan that should be well documented in the communications policy.
Abercrombie and Fitch have been successful in the United States Market, and it is expected this success will be replicated in the European Market. Over the years, part of its marketing strategy has been a segmentation. Although it does use brand positioning and targeting, segmentation has yielded the best results. In the United States, the company uses geographic, behavioral, psychographic and demographic segmentation. Segmentation is the most appropriate marketing strategy that Abercrombie and Fitch should use for its brand in the European market. The philosophy of Abercrombie and Fitch is to sell its products through their stores. This exclusive distribution has enabled the company to create a market differentiation, which has raised the status of the brand. With this high level of differentiation Abercrombie and Fitch will use a price differentiated pricing model in the European market. Though there are risks involved in this pricing policy, it is expected that Abercrombie and Fitch will be able to mitigate such risks. A company communication policy is very essential and with the expansion of Europe, Abercrombie and Fitch will develop a communications policy for this market. All the essential elements must be taken into consideration when developing the process.
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