Good Report On Abercrombie And Fitch: Expanding Into The European Market
Authored by: STUDENT NUMBER
Abercrombie and Fitch has been expanding into the European market, and is faced with a challenge of duplicating its feat in the American market into a market miles away. It would need the best and most appropriate marketing strategy to support the A&F brand. Will it need a segmentation strategy, targeting, or positioning, or perhaps any combination of two or even all of them in a one long integrated marketing strategy? Another decision the Company needs to make regards its product policy. It may have succeeded in its standardized product policy in the United States. But the game may be different in Europe. Will an adaptive policy work or standardization continue to work its wonders?
A differentiated price policy has its unique benefits. In fact, a large number of successful multinational companies are using it. Will this policy work for A&F? The fourth that needs to be straightened out regards the Company’s exclusive distributorship policy in the United States. Will the same distribution company succeed in expanding the products’ market in a strange land it may not be familiar. Will a local distributor do the job better? A final critical matter the Company needs is to choose which part of the communication process it needs to focus on in persuading the European market to take on with enthusiasm the A&F brand. All these points of decision can make or break the Company’s survival before the European consumers.
Q1: What would be the most appropriate marketing strategy (segmentation, targeting, positioning) for the A&F brand in Europe?
Technically, market segmentation is not a different marketing approach to marketing than targeting strategy. It is an important component, a critical initial step in target marketing. It is about dividing customers into relevant groups of potential buyers based on similar preferences and buying habits (Sarkissian, 2015). For a segmentation profile for the European market to be created, A&F must first conduct a marketing study specific to each market in Europe (e.g. United Kingdom, France, Germany, and so on). The Company must know as close as possibly to exact knowing why people buy in a specific market (e.g. United Kingdom) apparels the way they do. What need that is filled in the buying? What want that figures in the purchase? Such information may always involve a certain level of marketing research into the buying behaviors of the specific markets in Europe where the A&F brand is planning to penetrate. Without marketing research, the strategy would become a costly trial-and-error that, if not successful, may throw negative impressions and experiences with the A&F brand. That is not something worth risking for that would justify any cost of marketing research.
Once a market segmentation profile is created, the Company can then select, which customer segments – A, B, C, D, or E – it wants to focus its marketing efforts. The Company must assess the potential profitability of the different segments or sectors identified in the profile. That strategy is called ‘target marketing.’ The A&F marketing efforts will now be ‘targeted’ at that specific market segment or segments. If sector A has purchasing power to buy any A&F brand, then the Company start attracting this type of customers through appropriate marketing campaigns. If the sector population is not exciting enough to be exclusive with, then the Company may find sector B adequately qualified to be another target group. Unlike mass marketing, target marketing matches marketing efforts with an accurate and precise marketing segmentation profile habits (Sarkissian, 2015).
Target marketing, however, does not mean excluding people outside your target sectors; that is, failed to meet your criteria of your buying customers (Porta, 2010). Instead, it means focusing the Company’s marketing resources into those priority sectors, while remaining aware that those who did not belong statistically to those sectors may turn out to be eventual loyal customers. That even represents a welcome development, but not something the Company will pour its dollars onto.
In the light of the market sector chosen to prioritize through target marketing, positioning of the product is the next most fitting step in the process. Positioning creates the best and a specific image for the A&F products in the customer’s mind with respect to the most crucial factors in the specific sectors the Company is targeting. To be very effective, it must also address subtle expectations from the customers (Ashe-Edmunds, 2015). In the case of A&F, its brands already managed to create a branding image in the United States, which has spilled into many European markets, as exemplified in the interview of the German youth Melanie in page 470. This means two things: (1) the A&F possess branding power in certain sectors in the European market (such as the youth); (2) brand recognition in a certain sector in the European market (e.g. the youth) does not necessarily mean the same level of brand recognition in that entire sector or even the other sectors selected as target sectors.
If the question meant, which stage in the marketing process that A&F should do first given the current state of its knowledge of the market, assuming no marketing segmentation research was conducted so far, the stage, which it should focus right now is conducting an accurate and precise market segmentation study for each European market it is currently operating and is planning to operate in the future. Once the market segmentation profile is available, the Company can proceed to choose its priority sectors, understand the unique market profile in those sectors, and then reassess its American-based targeting efforts to understand how these sectors would probably respond to the marketing efforts. Based on that market responsiveness data, the Company can then modify its brand for the target European sectors.
Q2: Is it preferable to standardize or adapt the product policy to the European market?
The best product policy is not to be policy centered but to be customer centered. Focusing on the customer is an imperative nowadays (Gilmore and Pine, 1997). Drawing from that principle, it becomes preferable most of the time, if not always, to adapt product policy to the European markets instead of keeping product designs in its American standardized forms. Customers choose product based on many buying factors. However, of those many factors, cultural factors play a significant part, especially when the product designers follow certain sets of policies that make sense only primarily among home countries (that is, the American culture), which may, in certain aspect, oppose and negatively reflect into the eyes of the European customers.
However, customer-centricity may also pose a potential risk, or even a “curse” (Gilmore and Pine, 1997). It is an undeniable fact that, despite the sophistication of marketing research, customer preferences are as fluid as any reality. They change a lot. Expectedly, as customer needs grow in increasing diversity, such an approach when not adequately rationalized can inevitably add unnecessary cost to the already complex operational needs.
Despite the potential risks, product adaptation has a lot to offer to the European market, in general, than the rigidity of product standardization. First, the newly customized products can become a fresh offering that can effectively deal local competitive threats (Linton, 2015). If the A&F product becomes more uniquely fitted to the local customers’ unique general preferences, then the new product becomes an objective threat to the local competitors. Second, it can open up untapped developmental ideas for product designers to utilize in designing new products for other markets, thereby expanding the initial benefits of product adaptation locally. Newly designed A&F clothing designed specifically for the UK customers may gain popularity in former British colonies such as Hong Kong and India.
The point is, determining an effective product policy demands, not a tabletop visioning, but a direct interaction with existing and potential customers and collaboratively determine the current needs of the largest number in the target sectors, and then customize products based on these needs (Gilmore and Pine, 1997). Those customers who fall outside the greatest number of mass customizable customers and their needs will have to be won over some other ways; that is, other ways outside the widely favored product policy. Subramaniam and Hewett (2004) explained that such efforts need to be supported with “face-to-face contact” between headquarters and subsidiary managers to ensure positive product performance in international markets. Such cooperation in the international product designs and policy is crucial.
Fundamentally, based on the realities in the market, the question is not always between standardization and adaptation because the economies of scale favor the standardizer but adaptation attracts more the buying interest of customers (Hise and Choi, 2015: 2-3). The best option apparently is to balance between the two options based on current market demands, and standardize and/or adapt where maximization of profit potential becomes achievable and only only as far as these activities heighten the product’s market performance. The same goes with how A&F should define its product policy.
Q3: The Company has opted for a differentiated pricing policy between the USA and the European markets. What are the principal risks associated with this choice?
There are more subtle messages that companies communicate to their customers through their very pricing policy. A low-pricing strategy, for instance, works well with price-inelastic products and customers looking for affordability (Ashe-Edmunds, 2015). A high-pricing strategy may communicate higher perceived value. However, in the wrong market sector, such policy can prove disastrous.
One principal risk in differentiated pricing policy is perceptional variation, which can work very well or disastrously with A&F if not successfully managed. A customer who becomes aware that she is paying more for the same A&F product in an affluent commercial location may question her decision in buying again the same product from that more expensive outlet when she knows the same product is available in a less popular location that the Company considered as a secondary market. Such a negative impression can be demotivating to otherwise loyal customers. In fact, it can readily confuse or antagonize them (Pride and Ferrell, 2011: 292).
Another risk is brand damage. This may occur when a high-priced A&F brand may be sold too low in certain outlets where high-priced customers happen to visit by chance. A customer who loves the high-priced product because of the unique social status that comes from buying things expensive may be disheartened to see it sold in a less upwardly mobile location and worn by anyone living in that less affluent area. Either the customer will welcome the arbitrage (resell) opportunity or grew distaste on a brand that turned out to be cheaply priced after all (Pride and Ferrell, 2011: 292). For the brand-conscious A&F, resold products in secondary market is highly detrimental to its brand image and value. Nonetheless, the respectable brand image of the product is lost as far as that customer is concerned; and word-of-the-mouth may turn the unfortunate situation into a growing branding disaster.
Of course, pricing a product low in certain markets means forgoing the potential profits a high-priced A&F brand can make when otherwise sold in the right affluent markets (Frost, 2015). A company must be highly motivated to enter a market by offering it low prices for an affluently branded product. The profit potential in that market must be extremely high to merit such branding risk. Oftentimes though the risk will be unjustified.
A differentiated pricing must also consider A&F’s market position, competition, and inter-market distance (Ercetin and Tassiulas, 2005: 840; Stern, 1989: 30). In European markets where it remains a recent entrant this pricing strategy will not be encouraging, particularly within a national market. However, such strategy may be employed at a limited scale in markets far from current high-priced markets to ensure non-interaction between these markets or a geographically isolated domestic or foreign market. This approach to differentiated pricing is called ‘secondary market pricing’ (Pride and Ferrell, 2011: 292) when a company categorizes its markets into primary and secondary markets, and sells the product at lower prices in the secondary market. This approach also be given to a market segment that are willing to purchase a product at lower price during off-peak times, such as mandatory sale periods in malls and other commercial centers where an outlet is located.
Q4: Should the A&F brand stick to its exclusive distribution policy or extend its distribution channels in European countries?
Exclusivity or extensive distribution policy is not for every company. Either can increase the intangible value of one or diminish the other (Srinivasan, 2006: 120), particularly the value of the A&F brand. Exclusive distribution is generally appropriate to consumer specialty goods, which A&F brands may not be part of depending on its branding strength (Lamb, Hair and McDaniel, 2012: 404). A strong branding strength, even in consumer products such as clothing, can provide its brands with a ‘specialty’-like reputation or image.
An exclusive distribution policy has one important advantage: familiarity with the product and the market. However, it is also disadvantaged, especially when these exclusive distributors are only exposed to the home (American) market and have no experience with the European market, making brand exposure difficult if not near impossible (Frazier and Lassar, 1996: 39). Such lack of experience can be disastrous to the successful introduction of the A&F products in the European markets. However, if they have global reach and have dependable experience in the European market, these exclusive distributors constitute the first choice to distribute the A&F products to Europe. Otherwise, distributors with exemplary experience and outlook in the European markets must be given the distribution agreement.
However, increasing distribution intermediaries have its risks. Using too many may negatively impact on the brand’s image and its competitive position (Frazier and Lassar, 1996: 39). And that includes having too many outlets, which makes the A&F brand getting more commonplace, and like what Melanie of Germany said in page 470, “less attractive.”
In addition, it is also important to consider how the customers want to receive the product or to purchase it (Fontelera, 2015). Is it necessary for the target segment to be near the A&F shop to be able to purchase clothing regularly? Getting too close to the target customers may not be necessary due to the availability of various modes of transportation in cities and urban areas. This factor must also be referred to when deciding whether an extended distributorship is necessary in a specific European market, such as the United Kingdom, in cases wherein an exclusive distributor can only establish a national office in the capital city.
For the Company, the key phrases to remember in deciding between exclusive and extended distribution policy are “strategic moderation” and “giving the customers the way they want it received.” The answer to this question largely depends upon the current capability of its exclusive distributor. If it is effective globally, then going for exclusivity is advantageous. Less than that, a local distributorship can accomplish more than an exclusive US-based distributor can hope to achieve and at much less cost.
Q5: What elements must be taken into consideration when developing the communication policy designed for the European market?
In the same way that the A&F home communication policy holds together its distribution channels in the United States, the same principle must be observed when designing its communication policy for the European market (Mohr and Nevin, 1990: 36). It can serve as the line of exchange wherein persuasive information may be transmitted. Moreover, it is already an accepted fact in marketing that brands exist in the minds of the customer not only through their experience of a product, but more sustainably because of the long-term effects of communication (Open Lean, 2015).
There are many elements that must be taken into account in the development of the communication policy for the European market in order to avoid unnecessary and costly errors with regards to certain crucial factors. Of the seven major elements of communication – sender, message, encoding, channel, receiver, decoding, and feedback (Chand, 2015) – the most important elements to consider when designing the communication policy for A&F in the European market are the encoding process, the receiver, and the decoding process. These are the elements that often under limited control by the Company, the sender. And in the realm of communication, the foremost responsibility rests upon the sender and not the receiver. If the sender ensures that the message sent reflects the best of what the sender can do given the augmentation of its current limitations, the chances for the receiver to receive the message without, or at most with minimal, distortion will be high.
Since an idea is intangible in the same way as the message is, the encoding process is very crucial in the communication. Moreover, any communication content and behavior is always contextualized both by the sender and the receiver (Vladutescu, 2014: 193). There are three major environmental factors that increase the potential distortion infused into a sent message. First, the generic context of the message defines a wide spectrum of optional and possible communication interpretational meaning and behavior. Second, the specific situation existing when the message was sent and received also determines a set of different behaviors both in the sender while encoding the message and in the receiver when decoding the same message. Third, the special framework of the relationship between the sender and the receiver (e.g. stranger, acquainted, familiar, etc.) requires specific choices for a behavior based on a narrow set of communication behavior or meaning that by itself already potentially distorted.
In such a contextualized condition, any message is also subject to the many factors of environment that can distort the true and genuine message as intended by the sender. The encoding symbols must be in such a level as to be easily and accurately decoded by the receiver. Moreover, the receiver must have the necessary means to decode the message, and the sender must know that beforehand so that appropriate preparation may be performed in order to ensure that the message is decodable at the level of the receiver’s inherent capability.
For A&F, its communication policy must take into serious consideration its capability to create an encodable as well decodable message. That means hiring communicators that speaks the language of the European markets, particularly the specific sectors of specific to the company. They can translate effectively the sender’s (Company’s) message in such a way that the receiver (customers) understands it accurately. This also means that, although the message may be condition by factors unique in its American source, the A&F communication strategy must be localized (Marsh, 2015). The American message must be transformed into a European message so that it will be understandable and persuasive to European customers. Without such conditions established in the Company’s communication policy, the persuasive power of communication gets lost upon reaching the customer.
Making the five critical decisions will not be easy for A&F. If it follows the framework of customer satisfaction, it will go far in making waves in the European market. It must target its markets properly through the help of segmentation research. It must standardize and adapt as the customer demands. It may have to follow a differentiated pricing policy but only to increase profit margin not to undercut the competition. Moreover, it may continue its exclusive distribution policy but only if the distributing company can, with confident certainty, deliver. Otherwise, expanding will be much wiser. Finally, it must be very careful in taking effective control of the encoding and decoding processes to ensure that its message retain its persuasive power and not disappear unrecognized in the market’s ears.
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