MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes

 MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes

MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes

The Indian Institute Of Business Management & Studies
Subject: Marketing Management Marks: 100
1
Note: Solve any 4 Cases
CASE: I Managing the Guinness brand in the face of consumers’ changing tastes
1997 saw the US$19 billion merger of Guinness and GrandMet to form Diageo, the world’s largest
drinks company. Guinness was the group’s top-selling beverage after Smirnoff vodka, and the group’s
third most profitable brand, with an estimated global value of US$1.2 billion. More than 10 million glasses
of the popular stout were sold every day, predominantly in Guinness’s top markets: respectively, the UK,
Ireland, Nigeria, the USA and Cameroon.
However, the famous dark stout with the white, creamy head was causing some strategic concerns
for Diageo. In 1999, for the first time in the 241-year of Guinness, sales fell. In early 2002 Diageo CEO Paul
Walsh announced to the group’s concerned shareholders that global volume growth of Guinness was
down 4 per cent in the last six months of 2001 and, more alarmingly, sales were also down 4 per cent in
its home market, Ireland. How should Diageo address falling sales in the centuries-old brand shrouded in
Irish mystique and tradition?
The changing face of the Irish beer market
The Irish were very fond of beer and even fonder of Guinness. With close to 200 litres per capita
drunk each year—the equivalent of one pint per person per day—Ireland ranked top in worldwide per
capita beer consumption, ahead of the Czech Republic and Germany.
Beer accounted for two-thirds of all alcohol bought in Ireland in 2001. Stout led the way in volume
sales and accounted for 40 per cent of all beer value sales. Guinness, first brewed in 1759 in Dublin by
Arthur Guinness, enjoyed legendary status in Ireland, a national symbol as respected as the green, white
and gold flag. It was by far the most popular alcoholic drink in Ireland, accounting for nearly one of every
two pints of beer sold. Its nearest competitors were Budweiser and Heineken, which held 13 per cent and
12 per cent of the market respectively.

MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
However, the spectacular economic growth of the Irish economy since the mid-1990s had opened
up the traditional drinking market to new cultures and influences, and encouraged the travel-friendly
Irish to try other drinks. Beer and in particular stout were losing popularity compared with wine or the
recently launched RTDs (ready-to-drinks) or FABs (flavoured alcoholic beverages), which the younger
generation of drinkers considered trendier and ‘healthier’. As a Euromonitor report explained: Younger
consumers consider dark beers and stout to be old fashioned drinks, with the perceived stout or ale
drinker being an old, slightly overweight man and thus not in tune with image conscious youth culture.
Beer sales, which once accounted for 75 per cent of all alcohol bought in Ireland, were expected to drop
to close to 50 per cent by 2006, while stout sales were forecast to decrease by 12 per cent between 2002
and 2006.
Giving Guinness a boost in its home market
With Guinness alone accounting for 37 per cent of Diageo’s volume in the market, Guinness/UDV Ireland
was one of the first to feel the pain caused by the declining popularity of beer and in particular stout. A
Euromonitor report in February 2002 explained how the profile of the Guinness drinker, typically men
aged 21-plus, was affected: The average age of Guinness drinkers is rising and this is bringing about the
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worrying fact that the size of the Guinness target audience is falling. The rate of decline is likely to
quicken as the number of less brand loyal, non-stout drinking younger consumers increases.
The report continued:
In Ireland, in particular, the consumer base for Guinness is shrinking as the majority of 18 to 24 year olds
consistently reject stout as a product relevant to their generation, opting instead to consume lager or
spirits.
Effectively, one-third of young Irish men and half of young Irish women had reportedly never tried
Guinness. A Guinness employee provided another explanation. Guinness is similar to coffee in that when
you’re young you drink it [coffee] with sugar, but when you’re older you drink it without. It’s got a similar
acquired taste and once you’re over the initial hurdle, you’ll fall in love with it.
In an attempt to lure young drinkers to the somewhat ‘acquired’ Guinness taste (40 per cent of the Irish
population was under the age of 24) Diageo had invested millions in developing product innovations and
brand building in Ireland’s 10,000 pubs, clubs and supermarkets.
Product innovation
Until the mid-1990s most Guinness in Ireland was drunk in a pint glass in the local pub. The launch of
product innovations in the form of a new cooling mechanism for draft Guinness and the ‘widget’
technology applied to cans and bottles attempted to modernize the brand’s image and respond to
increasing competition from other local and imported stouts and lagers.
‘A perfect head’ for canned Guinness. In 1989, and at a cost of more than £10 million, Guinness developed
an ingenious ‘widget’ device for its canned draft stout sold in ‘off-trade’ outlets such as supermarkets and
off-licenses. The widget, placed in the bottom of the can, released a gas that replicated the draft effect.
Although over 90 per cent of beer in Ireland was sold in ‘on-trade’ pubs and bars, sale of beer in the
cheaper ‘off-trade’ channel were slowly gaining in importance. The Guinness brand manager at the time,
John O’Keeffe, explained how home drinkers could now enjoy a smoother, creamier head similar to the
one obtained in a pub thanks to the new widget technology:
When the can is opened, the pressure causes the nitrogen to be released as the widget moves through the
beer, creating the classic draft Guinness surge.
Nearly 10 years later, in 1997, the ‘floating widget’ was introduced, which improved the effectiveness of
the device. A colder pint In 1997 Guinness Draft Extra Cold was launched in Ireland. An additional chilled
tap system could be added to the standard barrel in pubs, allowing the Guinness to be served at 4ºC
rather than the normal 6ºC. By serving Guinness at a cooler temperature, Guinness/UDV hoped to mute
the bitter taste of the stout and make it more palatable for younger adults, who were increasingly
accustomed to drinking chilled lager, particularly in the summer
A cooler image for Guinness
In October 1999 the widget technology was applied to long-stemmed bottles of Guinness. The launch was
supported by a US$2 million TV and outdoor board campaign. The packaging—with a clear, shiny plastic
wrap, designed to look like a pint complete with creamy head—was quite a departure from the
traditional Guinness look.
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The objective was to reposition Guinness alongside certain similarly packaged lagers and RTDs and offer
younger adults a more fashionable way to drink Guinness: straight from the bottle. It also gave Guinness
easier access to the growing number of clubs and bars that were less likely to serve traditional draft
Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional
draft Guinness, which could be kept for only six to eight weeks and took two minutes to pour. The RTDs,
by contrast, had a shelf-life of more than a year and were drunk straight from the bottle.
However, financial analyst remained sceptical about the Guinness product innovations, which had no
significant positive impact on sales or profitability:
The last news about the success of the recently introduced innovations suggests that they have not had a
notably material impact on Guinness brand performance.
Brand building
Euromonitor estimates that, in 2000, Diageo invested between US$230 and US$250 million worldwide in
Guinness advertising and promotions. However, with a cost-cutting objective, the company reduced
marketing expenses in both Ireland and the UK up to 10 per cent in 2001 and the number of global
Guinness agencies from six to two.
Nevertheless, Guinness remained one of the most advertised brands in Ireland. It was the leading cinema
advertiser and, in terms of advertising, was second only to the national telecoms provider, Eircom.
Guinness was also heavily promoted at leading sporting and music events, in particular those that were
popular with the younger age groups.
The ultimate tribute to the brand was the opening of the new Guinness Storehouse in Dublin in late 2000,
a sort of Mecca for all Guinness fans. The Storehouse was also a fashionable visitor centre with an art
gallery and restaurants, and regularly hosted evening events. The company’s design brief highlighted
another key objective:
To use an ultramodern facility to breathe life into an ageing brand, to reconnect an old company with
young (sceptical) customers.
As the Storehouse’s design firm’s director, Ralph Ardill, explained:
Guinness Storehouse had become the top tourist destination in Ireland, attracting more than half a
million people and hosting 45,000 people for special events and training.
The Storehouse also had training facilities for Guinness’s bartenders and 3000 Irish employees. The
quality of the Guinness pint remained a high priority for the company, which not only developed pub-like
classrooms at the Storehouse but also employed teams of draft technicians to teach barmen how to pour
a proper pint. The process involved two steps—the pour and the top-up—and took a total of 119.5
seconds. Barmen also needed to learn how to check that the pressure gauges were properly set and that
the proportion of nitrogen to carbon dioxide in the gas was correct.
The uncertain future of the Guinness brand in Ireland
Despite Guinness/DUV’s attempt to appeal to the younger generation of drinkers and boost its fading
image, rumours persisted in Ireland about the brand future. The country’s leading and respected
newspaper, the Irish times, reported in an article in July 2001:
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MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
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The uncertainty over its future all adds to the air of crisis that is building around Guinness Ireland Group
four months ago…The review is not complete and the assumption is that there is more bad news to come.
In the pubs across Ireland, the traditional Guinness drinkers looked on anxiously as the younger
generation drank Bacardi Breezers, Smirnoff Ices or Californian wines. Could the goliath Guinness survive
another two centuries? Was the preference for these new drinks just a fad or fashion, or did Diageo need
to seriously reconsider how it marketed Guinness?
A quick solution?
In late February 2002, Diageo CEO Paul Walsh revealed that the company was testing technology to cut
the waiting time for a pint of Guinness from 1 minute 59 seconds to 15-25 seconds. Ultrasound could
release bubbles in the stout and form the head instantly, making a pint of Guinness that would be
indistinguishable from one produced by the slower, traditional method.
‘A two-minute pour is not relevant to our customers today,’ Walsh said. A Guinness spokeswoman
continued, ‘We have got to move with the times and the brand must evolve. We must take all the
opportunities that we can. In outlets where it is really busy, if you walk in after nine o’clock in the evening
there will be a cloth over the Guinness pump because it takes longer to pour than other drinks. Aware
that some consumers might not be attracted by the innovation, she added ‘It wouldn’t be put
everywhere—only where people want a quick pint with no effect on the quality.’
Although still being tested, the ‘quick-pour pint’ was a popular topic of conversation in Dublin pubs,
among barmen and customers alike. There were rumours that it would be introduced in Britain only;
others thought it would be released worldwide.
Some market commentators viewed the quick-pour pint as an innovative way to appeal to the younger,
less patient segment in which Guinness had under-performed. Others feared that the young would be
unconvinced by the introduction, and loyal customers would be turned off by what they characterized as
a ‘marketing u-turn’.
Question:
1. From a marketing perspective, what has Guinness done to ensure its longevity?
2. How would you characterize the Guinness brand?
3. What could Guinness do to attract younger drinkers? And to retain its older loyal customer base?
Can both be done at the same time?
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Subject: Marketing Management Marks: 100
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MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
CASE: II The grey market
Introduction
The over-50s market has long been ignored by advertising and marketing firms in favour of the market.
The complexity of how to appeal to today’s mature customers, without targeting their age, has proved
just too challenging for many companies. But this preoccupation with youth runs counter to demographic
changes. The over-50s represent the largest segment of the population, across western
developed countries, due largely to the post-Second World War baby boom. The sheer size of this grey
market, which will continue to grow as birth and mortality rates fall, coupled with its phenomenal
spending power, presents enormous opportunities for business. However, successfully unleashing its
potential will depend on companies truly understanding the attitudes, lifestyles and purchasing interests
of this post-war generation.
Demographic forces
Following the Second World War many countries experienced a baby boom phenomenon as returning
soldiers began families. This, coupled with a more positive outlook on the future, resulted in the baby
boom generation, born between 1946 and 1964. Now beginning to enter retirement, this affluent group
globally numbers approximately 532 million. In Western Europe they account for the largest proportion
of the total population at 14.9%, followed closely by 14.2% in North America and 13.5 % in Australia.
Table 1: Global population aged 45-54 by region: baby boomers as a % of the total population
1990/2002
Baby boomers as a
% total population
1990 2002 % point change
Western Europe 12.9 14.9 2.0
North America 9.9 14.2 4.3
Australasia 10.4 13.5 3.1
Eastern Europe 9.7 13.0 3.3
Asia-Pacific 7.8 9.8 2.0
Latin America 6.6 8.4 1.8
Africa/Middle East 2.6 2.3 20.3
WORLD 7.9 9.5 1.6
The grey market is big and getting bigger. Between 1990 and 2002 the global baby boomer population
increased by 41%. The rate of growth is predicted to decrease to 35% between 2002 and 2015.
Particularly noteworthy is the predicted increase in the proportion of baby boomers in many Western
European countries, such as Austria, Spain, Germany, Italy, and the UK. In developed countries, according
to the United Nations, the percentage of elderly people (60+) is forecast to rise from one-fifth of the
population to one-third by 2050. The growth in the elderly population is exacerbated by falling fertility
rates in many developed countries, coupled with a rise in human longevity.
The influences and buyer behaviour patterns of baby boomers
The members of the baby boomer generation are quite unlike their more conservative parents’
generation. They are the children of the rebellious ‘swinging sixties’, growing up on the sounds of the
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Beatles and the Rolling Stones. Better educated than their parents, in a time of greater prosperity, they
indulged in more hedonistic lifestyle. It has been said that they were the first ‘me generation’. Now, in
later life, they have retained their liberal, adventurous and youthful attitude to life. Aptly termed ‘younger
older people’ they abhor antiquated stereotypes of elderly people, preferring to be defined by their
attitude rather than their age.
Baby boomers are also tend to be very wealthy. Many are property owners and may have gained an
inheritance from parents or other relatives. They have higher than average incomes or have retired with
private pension plans. With their children having flown the nest they have greater financial freedom and
more time to indulge themselves. Having worked all their lives, and educated their children, many baby
boomers do not believe it is their responsibility to safeguard the financial future of their children by
carefully protecting their children’s inheritance. They are instead liquidating their assets, intent on
enjoying their later life to full, often through conspicuous consumption.
Based on research conducted by Euromonitor, the main areas of expenditure in the baby boomer market
are financial services, tourism, food and drink, luxury cars, electrical/electronic goods, clothing, health
products, and DIY and gardening.
Table 2: Global population aged 45-54 in thousands by country: developed countries 2002-2015
Country 2002 2010 2015 %change 2002/2015
Austria 1,059 1,277 1,371 29
Spain 4,921 5,741 6,189 26
Germany 10,991 12,963 13,508 26
Italy 7,684 8,591 9,347 23
UK 7,786 8,731 9,388 22
New Zealand 521 607 613 21
Ireland 474 529 555 18
Switzerland 997 1,120 1,159 17
Australia 2,661 3,006 3,057 16
Greece 1,359 1,476 1,559 15
Canada 4,505 5,320 5,122 15
Netherlands 2,301 2,492 2,604 14
Portugal 1,334 1,438 1,511 13
Norway 612 640 678 13
Denmark 745 761 802 11
USA 38,951 44,140 42,207 8
Belgium 1,423 1,549 1,526 8
Sweden 1,206 1,179 1,233 2
Japan 18,344 15,661 16,459 -10
Finland 820 749 718 -12
France 8,266 7,626 7,292 -12
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Figure 1 Global Baby boomer market: % analysis by broad sector 2002 (% value)
Note: sectors valued on the basis of estimates by senior managers in major companies in each sector,
consumer expenditure and industry sector data.
Unsurprisingly the financial sector is the largest in this market. Baby boomers are concerned with
being financially secure in their retirement. An ageing population, coupled with a rise in human longevity,
is giving rise to a pensions crisis across Western Europe. Baby boomers are therefore right to be
preoccupied with how they will maintain their lifestyle over the long term. They are actively engaging in
financial planning, both before and after retirement. Popular financial service products include
endowments, life insurance, personal pensions, PEPs and ISAs.
Baby boomers have adventurous attitudes with a desire to see the world. In their retirement
foreign travel is a key expenditure. Given their greater levels of sophistication and education, baby
boomers are much more demanding of holidays that suit their lifestyles. This group is very diverse, with
holiday interests ranging from action-packed adventures to culturally rich experiences.
Baby boomers want to maintain a youthful appearance in line with their youthful way of living.
Fear of becoming invisible is a genuine concern among older generations. This image conciousness is
reflected in their spending on clothing, cosmetics and anti-ageing products. Luxury cars also a key status
symbols for this group.
The home is another area of expenditure. Once children have flown the nest, many baby boomers
redecorate the home to suit their needs. Electrical and electronic purchases are key indulgences among
these technologically savvy consumers. Gardening is another pastime enjoyed by older generations.
Financial
services
22%
DIY/gardening
3%
Health
products
10%
Clothing
11%
Electrical/elec
tronic
11%
Luxury cars
12%
Food/drink
13%
tourism
18%
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Health is also a priority. Baby boomers invest in private health insurance and over-the-counter
pharmaceutical products to maintain their healthy lives.
Business opportunities
The sheer size of the grey market, which is getting bigger in many countries—characterized by
consumers with disposable income, ample free time, interest in travel, concern about financial security
and health, awareness of youth culture and brands and desire for aspirational living—makes this market
enormously attractive to many business sectors. Pharmaceuticals, health and beauty, technology, travel
financial services, luxury cars, lavish food and entertainment are key growth sectors for the grey market.
However, successfully tapping into this market will depend on companies truly understanding the
attitudes, lifestyles and purchasing interests of this post-war generation. Communicating with this group
is a tricky business, but, done right, it can be hugely rewarding.
When targeting the older consumer it is important to target their lifestyle and not their age. Older
people do not want to be reminded, in a patronizing way, of their age or what they should be doing now
they are a certain stage in life. With an interest in maintaining a youthful way of life these consumers are
interested in similar brands to those that appeal to younger generations. The key for the companies is to
find a way of making their brands also appeal to an older consumer without explicitly targeting their age.
One tried-and tested method of targeting this group is to use nostalgia. Mercedes Benz used the Janis
Joplin song ‘Oh Lord won’t you buy me a Mercedes Benz’ to great effect despite the obvious irony in that
the song was written to highlight the dangers of materialism! Volkswagen’s new retro-style Beetle has
also been popular among this group.
In the tourism sector Saga Holidays, the leader in holidays for the over-50s, has changed its
product offering to reflect changing trends among this group. In line with the more adventurous attitudes
of many older consumers it now offers more action-packed adventure holidays to far-flung destinations.
More recently, Thomas Cook has rebranded it over-50s ‘Forever Young’ programme to reflect the
diverse interest of its target customers. Its new primetime brochure targets five distinct groups with the
following holiday types: ‘Discover’, ‘Learn’, ‘Relax’, ‘Active’ and ‘Enjoy Life’.
Conclusion
The over-50s represent the largest segment of the population across Western developed countries. This
affluent market is big and getting bigger. Having ignored it for so long marketers are finally beginning to
see the enormous opportunities presented by the grey market. But conquering this market will not be
easy. The baby boomer generation is quite unlike its predecessors. With a youthful and adventuresome
spirit these ‘younger older people’ want to be defined by their attitude and not by their age. Only time
will tell whether today’s marketers are up to the challenge.
Questions
1. Why is the grey market so attractive to business?
2. Identify the influences on the purchasing behaviour of the over-50s consumer.
3. Discuss the challenges involved in targeting the grey market.
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Subject: Marketing Management Marks: 100
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MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
CASE: III Nivea: managing an umbrella brand
‘In many countries consumer are convinced that Nivea is a local brand, a mistake which Beiersdoft, the
German makers, take as a compliment.’
(Quoted on leading brand consultancy Wolff-Olins’ website, www.wolff-olins.com)
An ode to Nivea’s success
In May 2003, a survey of ‘Global Mega Brand Franchises’ revealed that the Nivea Cosmetics brand had
presence in the maximum number of product categories and countries. The survey, conducted by USbased
ACNielsen, aimed at identifying those brands that had ‘successfully evolved beyond their original
product categories’. A key parameter was the presence of these brands in multiple product categories as
well as countries.
Nivea’s performance in this study prompted a yahoo.com news article to name it the ‘Queen of Mega
Brands’. This title was appropriate since the brand was present in over 14 product categories and was
available in more than 150 countries. Nivea was the market leader in skin creams and lotions in 28
countries, in facial cleansing in 23 countries, in facial skin care in 18 countries, and in suntan products in
15 countries. In many of those countries, it was reportedly believed to be a brand of local origin—having
been present in them for many decades. This fact went a long way in helping the brand attain leadership
status in many categories and countries (see Table 3).
Table 3 Nivea: market positions
CATEGORY Skin
care
Baby
care
Sun
protection
Men’s
care
COUNTRY
Austria 1 1 2 1
Belgium 1 1 3 1
UK 1 3 - 1
Germany 1 1 3 1
France 1 1 1 3
Italy 1 1 5 1
Netherlands 1 1 5 1
Spain 1 4 - 1
Switzerland 1 1 4 1
The study covered 200 consumer packaged goods brands from over 50 global manufacturers. The brands
had to be available in at least 15 of the countries studied; the same name had to be used in at least three
product categories and meet franchise in at least three of the five geographical regions.
In its home country Germany, too, many of Nivea’s products were the market leaders in their segments.
This market leadership status translated into superior financial performance. Between 1991 and 2001,
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Nivea posted double-digit growth rates every year. For 2001, the brand generated revenues of €2.5
billion, amounting to 55 per cent of the parent company’s (Beiersdoft) total revenue for the year. The
120-year-old, Hamburg-based Beiersdoft has often been credited with meticulously building the Nivea
brand into the world’s number one personal care brand. According to a survey conducted by ACNielsen in
the late 1990s, the brand had a 15 per cent share in the global skin care products market. While Nivea
had always been the company’s star performer, the 1990s were a period of phenomenal growth for the
brand. By successfully extending what was essentially a ‘one-product wonder’ into many different
product categories, Beiersdoft had silenced many critics of its umbrella branding decision.
The marketing game for Nivea
Millions of customers across the world have been familiar with the Nivea brand since their childhood.
The visual (colour and packaging) and physical attributes (feel, smell) of the product stayed on in their
minds. According to analysts, this led to the formation of a complex emotional bond between customers
and the brand, a bond that had strong positive under-tones. According to a superbrands.com. my article,
Nivea’s blue colour denoted sympathy, harmony, friendship and loyalty. The white colour suggested
external cleanliness as well as inner purity. Together, these colours gave Nivea the aura of an honest
brand.
To customers, Nivea was more than a skin care product. They associated Nivea with good health, graceful
ageing and better living. The company’s association Nivea with many sporting events, fashion events and
other lifestyle-related events gave the brand a long-lasting appeal. In 2001, Franziska Schmiedebach,
Beiersdoft’s Corporate Vice President (Face Care and Cosmetics), commented that Nivea’s success over
the decades was built on the following pillars: innovation, brand extension and globalization (see Table 4
for the brand’s sales growth from 1995-2002)
Table 4 Nivea: worldwide sales growth (%)
Innovation and brand extensions
Innovation and brand extensions went hand in hand for Nivea. Extensions had been made back in the
1930s and had continued in the 1960s when the face care range Nivea Visage was launched. However, the
first major initiative to extend the brand to other products came in the 1970s. Naturally, the idea was to
cash in on Nivea’s strong brand equity. The first major extension was launch of ‘Nivea For Men’
aftershave in the 1970s. Unlike the other aftershaves available in market, which caused the skin to burn
on application, Nivea For Men soothed the skin. As a result, the product became a runaway success.
The positive experience with the aftershave extension inspired the company to further explore the
possibilities of brand extensions. Moreover, Beiersdoft felt that Nivea’s unique identity, the values it
Sales Growth 1995 1996 1997 1998 1999 2000 2001 2002
In Million € 1040 1166 1340 1542 1812 2101 2458 2628
In per cent 9.8 12.1 14.9 15.1 17.5 16.0 17.0 6.9
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represented (trustworthiness, simplicity, consistency, caring) could easily be used to make the transition
to being an umbrella brand. The decision to diversify its product range was also believed to have
influenced by intensifying competitive pressures. L’Oreal’s Plenitude range, Procter & Gamble’s Oil of
Olay range, Unilever’s Pond’s range, and Johnson & Johnson’s Neutrogena range posed stiff competition
to Nivea.
Though Nivea was the undisputed market leader in the mass-market face cream segment worldwide, its
share was below Oil of Olay’s, Pond’s and Plenitude’s in the US market. While most of the competing
brands had a wide product portfolio, the Nivea range was rather limited. To position Nivea as a
competitor in a larger number of segments, the decision to offer a wider range inevitable.
Beiersdoft’s research centre—employing over 150 dermatological and cosmetics researchers,
pharmacists and chemists—supported its thrust on innovations and brand extensions. During the 1990s,
Beiersdoft launched many extensions, including men’s care products, deodorants (1991), Nivea Body
(1995), and Nivea Soft (1997). Most of these brand extension decisions could be credited to Rolf Kunisch,
who became Beiersdoft’s CEO in the early 1990s. Rolf Kunisch firmly believed in the company’s ‘twin
strategy’ of extension and globalization.
By the beginning of the twenty-first century, the Nivea umbrella brand offered over 300 products in 14
separate segments of the health and beauty market (see Table 5 and Figure 2 for information on Nivea’s
brand extensions). Commenting on Beiersdoft’s belief in umbrella branding, Schmiedebach said,
‘Focusing your energy and investment on one umbrella brand has strong synergetic effects and helps
build leading market positions across categories.’ A noteworthy aspect of the brand extension strategy
was the company’s ability to successfully translate the ‘skin care’ attributes of the original Nivea cream to
the entire gamut of products.
Table 5 Nivea: brand portfolio
Category Products
Nivea Bath Care Shower gels, shower specialists, bath foams, bath specialists, soaps, kids’
products, intimate care
Nivea Sun (sun care) Sun protection lotion, anti-ageing sun cream, sensitive sun lotion, sunspray,
children’s sun protection, deep tan, after tan, self –tan, Nivea baby
sun protection
Nivea Beaute (colour cosmetics) Face, eyes, lips, nails
Nivea For Men (men’s care) Shaving, after shaving, face care, face cleansing
Nivea Baby (baby care) Bottom cleansing, nappy rash protection, general cleansing, moisturizing,
sun protection
Nivea Body (body care) Essential line, performance line, pleasure line
Nivea Crème Nivea crème
Nivea Deodorants Roll-ons, sprays, pump sprays, sticks, creams, wipes, compact
Nivea Hand (hand care) Hand care lotions and creams
Nivea Lip Care Basic care, special care, cosmetic care, extra protection care
Nivea Visage (face care) Daily cleaning, deep cleaning, facial masks (cleaning/care), make-up
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remover, active moisture care, advanced repair care, special care
Nivea Vital (mature skin care) Basic face care, specific face care, face cleansing products, body care
Nivea Soft Nivea soft moisturizing cream
Nivea Hair Care Hair care (shampoos, rinse, treatment, sun); hair styling (hairspray and
lacquer, styling foams and specials, gels and specials)
Figure 2 Nivea Universe
The company ensured that each of its products addressed a specific need of consumers. Products in all
the 14 categories were developed after being evaluated on two parameters with respect to the Nivea
mother brand. First, the new product had to be based on the qualities that the mother brand stood for
NIVEA
NIVEA
Visage
NIVEA
For
Men
NIVEA
Creme
NIVEA
Body
NIVEA
Sun
NIVEA
Soft
Skin Care
NIVEA
Beaute
NIVEA
Baby
NIVEA
Hand NIVEA
Vital
NIVEA
Hair
NIVEA
Deodorrants
Personal Care
NIVEA
Bath
Care
NIVEA
Lipcare
Personal Care
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and, second, it ha to offer benefits that were consistent with those that the mother brand offered. Once a
new product cleared the above test, it was evaluated for its ability to meet consumer needs and its scope
for proving itself to be a leader in the future. For instance, a Nivea shampoo not only had to clean hair, it
also had to be milder and gentler than other shampoos in the same range.
Beiersdoft developed a ‘Nivea Universe’ framework for streamlining and executing its brand extension
efforts. This framework consisted of a central point, an inner circle of brands and an outer circle of
brands (see Figure 2)
The centre of the model housed the ‘mother brand’, which represented the core values of
trustworthiness, honesty and reliability. While the brands in the inner circle were closely related to the
core values of the Nivea brand, the brands in the outer circle were seen as extensions of these core
values. The inner-circle brands strengthened the existing beliefs and values associated with the Nivea
brand. The outer circle brands, however, sought to add new dimensions to the brand’s personality,
thereby opening up avenues, for future growth.
The ‘global-local’ strategy
The Nivea brand retained its strong German heritage and was treated as a global brand for many decades.
In the early days, local managers believed that the needs of customers from their countries were
significantly different from those of customers in other countries. As a result, Beiersdoft was forced to
offer different product formulations an packaging, and different types of advertising support.
Consequently, it incurred high costs.
It was only in the 1980s that Beiersdoft took a conscious decision to globalize the appeal of Nivea. The
aim to achieve a common platform for the brand on a global scale and offer customers from different
parts of the world a wider variety of product choices. This was radical departure from its earlier
approach, in which product development and marketing efforts were largely focused on the German
market. The new decision was not only expected to solve the problems of high costs, it was also expected
to further build the core values of the brand.
To globalize the brand, the company formulated strategies with the help of a team of ‘international’
experts with ‘local expertise’. This team developed new products for all the markets. Their
responsibilities included, among others, deciding about the way in which international advertising
campaigns should be adapted at the local level. The idea was to leave the execution of strategic decisions
to local partners. However, Beiersdoft monitored the execution to ensure that it remained in line with the
global strategic plan.
This way, Beiersdoft ensured that the nuances of consumer behaviour at the local level understood and
that their needs were addressed. Company sources claimed that by following the above approach, it was
easy to transfer know-how between headquarters and the local offices. In addition, the motivation level
of the local partners also remained on the higher side.
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The company established a set of guidelines that regulated how the marketing mix of a new
product/brand was to be developed. These guidelines stipulated norms with respect to product, pricing,
promotion, packaging and other related issues. For instance, a guideline regarding advertising read,
‘Nivea advertising is about skin care. It should be present visually and verbally. Nivea advertising is
simple, it is unpretentious and human.’
Thus all advertisements for any Nivea product depicted images related to ‘skin care’ and ‘unpretentious
human life’ in one way or the other. The company consciously decided not to use supermodels to
promote its products. The predominant colours in all campaigns remained blue and white. However, local
issues were also kept in mind. For instance, in the Middle East, Nivea relied more on outdoor media as it
worked out to be much more cost-effective. And since showing skin in the advertisements went against
the region’s culture, the company devised ways of advertising skin without showing skin.
Many brand management experts have spoken of the perils of umbrella management, such as brand
dilution and the lack of ‘change’ for consumers. However, the umbrella branding strategy worked for
Beiersdoft. In fact, the company’s growth was the most dynamic since its inception during 1990s—the
decade when the brand extension move picked up momentum. The strong yearly growth during the
1990s and the quadrupling of sales were attributed by company sources to the thrust on brand extension.
Questions
1. Discuss the reasons for the success of the Nivea range of products across the world. Why did
Beiersdoft decide to extend the brand to different product categories? In the light of Beiersdoft’s
brand extension of Nivea, critically comment on the pros and cons of adopting an umbrella
branding strategy. Compare the use of such a strategy with the use of an independent branding
strategy.
2. According to you, what are the core values of the Nivea brand? What type of brand extension
framework did Beiersdoft develop to ensure that these core values id not get diluted? Do you think
the company was able to protect these core values? Why/why not?
3. What were the essential components of Beiersdoft’s global expansion strategy for Nivea? Under
what circumstances would a ‘global-strategy-local execution’ approach be beneficial for a
company? When and why should this approach be avoided?
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MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
CASE: IV Pret a Manger: passionate about food
Introduction
Pret a Manger (French for ‘ready to eat’) is a chain of coffee shops that sells a range of upmarket, healthy
sandwiches and desserts as well as a variety o coffees to an increasingly discerning set of lunchtime
customers. Started in London, England, in 1986 by two university graduates, Pret a Manger has more
than 120 stores across the UK. In 2002 it sold 25 million sandwiches and 14 million cups of coffee, and
had a turnover of over £100 million. Buckingham Palace reportedly orders more than £1000 worth of
sandwiches a week and British Prime Minister Tony Blair has had Pret sandwiches delivered to number
10 Downing Street for working lunches. The company also has ambitious plans to expand further—it
already has stores in New York, Hong Kong and Tokyo, and has set its sights on further international
growth.
Background and company history
In 1986, Pret a Manger was founded with one shop, in central London, and a £17,000 loan, by two
property law graduates, Julian Metcalf and Sinclair Beecham, who had been students together at the
University of Westminster in the early 1980s. At that time the choice of lunchtime eating in London and
other British cities was more limited than it is today. Traditionally, some ate in restaurants while many
favoured that well-known British institution, the pub, as a choice for lunchtime eating and drinking.
There was, however, a growing awareness among many people of the benefits of healthy eating and a
healthy lifestyle, and lunchtime habits were changing. There was a general trend towards taking shorter
lunch brakes and, among office workers, to take lunch at their desks. For those who wanted food to take
away, the choice in fast food was dominated by the large chains such as McDonald’s, Burger King and
Kentucky Fried Chicken (now KFC) while other types of carry-out food, such as pizzas, were also
available.
Sandwiches also played an important part in British lunchtime eating. Named after its eighteenth-century
inventor, the Earl of Sandwich, the humble sandwich had long been a popular British lunch choice,
especially for those with little time to spare. Prior to Pret’s arrival on the scene, sandwiches were sold
mainly either pre-packed in supermarkets and high-street variety chain stores such as Marks and
Spencer and Boots, or in the many small sandwich bars that were to be found in the business districts of
large cities like London, Sandwich bars were usually small, independently owned or family run shops that
made sandwiches to order for customers who waited in a queue, often out on to the pavement outside.
Dissatisfied with the quality of both the food and service from traditional sandwich bars, Metcalf and
Beecham decided that Pret a Manger should offer something different. They wanted Pret’s food to be high
quality and healthy, and preservative and additive free. In the beginning, they shopped for the food
themselves at local markets and returned to the store where they made the sandwiches each morning.
Pret’s offering was based around premium-quality sandwiches and other health-orientated lunches
including salads, sushi and a range of desserts, priced higher than at traditional sandwich bars, and sold
pre-packed in attractive and convenient packaging ready to go. There was also a choice of different
coffees, as well as some healthy alternatives. Service aimed to be fast and friendly go give customers a
minimum of queuing time.
Pret a Manger: ‘Passionate about What We do’
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Pret a Manger strongly emphasizes the quality of its products. Its promotional material and website
claims that it is:
‘passionate about food, rejecting the use of obscure chemicals, additives and preservatives common in so
much of the prepared and fast food on the market today…it there’s a secret to our success so far we like
to think its determination to focus continually on quality—not just our food, but in every aspect of what
we do’.
Great importance is also placed on freshness. Unlike those sold in high-street shops or supermarkets,
Pret’s sandwiches are all hand-made by staff in each shop starting at 6.30 every morning, rather than
being prepared and delivered by a supplier or from a central location. Metcalf and Beecham believe this
gives their sandwiches a freshness and distinctiveness. All food that hasn’t been sold in the shops by the
end of the day is given away free to local charities.
Careful sourcing of supplies for quality has also always been important. Genetically modified ingredients
are banned and the tuna Pret buys, for example, must be ‘dolphin friendly’. There is also a drive for
constant product improvement and innovation—the company claims that its chocolate brownie dessert
has been improved 33 times over the last few years—and, on average, a new product is tried out in the
stores every four days. Aware that some of its customers are increasingly health conscious, Pret’s website
menu carefully lists not only what is available, but also the ingredients and nutritional values in terms of
energy, protein, fats and dietary fibre for each item.
The level and quality of service from staff in the shop is a critical factor. The stores are self-service, with
customers helping themselves to sandwiches and other products form the supermarket-style
refrigerated cabinets. Staff at the counter at the back of the store then serve customers coffee and take
payment. Service is friendly, smiling and efficient, in contrast to many retail and restaurant outlets in
Britain where, historically, service quality has not always been high. Prêt puts an emphasis on human
resource management issues such as effective recruitment and training so as to have frontline staff who
can show the necessary enthusiasm and also remain fast and courteous under the pressure of a busy
lunchtime sales period. These staff are usually young and enthusiastic, some are students, many are
international. The pay they receive is above the fast-food industry average and staff turnover is 98 per
cent a year, which sounds high—however, this is against an industry norm of around 150 per cent. In
2001, Pret had 55,000 applications for 1500 advertised vacancies.
Recently, Fortune magazine voted Pret one of the top 10 companies to work for in Europe. According to
its own promotional recruitment material, Pret is an attractive and fun place to work: ‘We don’t work
nights, we wear jeans, we party!’ Service quality is checked regularly by the use of mystery shoppers: if a
shop receives a good report, then the staff there receive a 75p an hour bonus in the week of the visit.
Head office managers also visit stores on a regular basis and every three or four months every one of
these managers works as a ‘buddy’, where they spend a day making sandwiches and working on the floor
in one of the shops to help them keep in touch with what is going on. Store employees work in teams and
are briefed daily, often on the basis of customer responses that come in from in-store reply cards,
telephone calls and the company website. The website, which, lists the names and phone numbers of its
senior executives, actively invites customers to comment or complain about their experience with Pret,
and encourages them to contact the company. Great importance is placed on this customer feed-back,
both positive and negative, which is discussed at weekly management meetings.
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The design of the stores is also distinctive. Prominently featuring the company logo, they are fitted out in
a high-tech with metal cladding and interiors in Pret’s own corporate dark red colour. Each store plays
music, helping to create a stylish and lively atmosphere. Although the shops mainly sell carry out food
and coffee in the morning and through the lunchtime period, many also have tables and seating where
customers can drink coffee and eat inside the store or, weather permitting, on the pavement outside.
Growth and competition
Three years after the first Pret shop was launched another was opened and, after that, the chain began to
grow so that, by 1998, there were 65 throughout London. In the late 1990s stores were also opened in
other British cities such as Bristol, Cambridge and Manchester. Although growth in the UK has been
rapid—between 2000 and 2002 the company opened 40 new outlets and there are over 120 throughout
Britain—Pret’s policy has always been to own and manage all its own stores and not to franchise to other
operators. In 2002, £1 million was spent in launching an Internet service that enables customers to order
sandwiches online.
Plans for international growth have been more cautious. In 2000 the company made its first move
overseas when it opened a shop near Wall Street in New York. However, there were problems on several
fronts in moving into the USA. Metcalf is quoted saying, ‘As a private company its very difficult to set up
abroad. We didn’t know where to begin in New York—we ended up having all the equipment for the shop
made here and shipped over.’ There were also staffing and service quality difficulties—Pret reportedly
found it difficult to recruit people in New York who had the required friendliness to serve in the stores
and had to import British staff. Despite these problems, several other shops in New York have followed
and, in 2001, Pret opened its first outlet in Hong Kong.
During the 1990s, coffee shops boomed as the British developed a growing taste for drinking coffee in
pavement cafes, and competition for Pret grew as other chains entered the fray. Rivals like Coffee
Republic, Caffè Nero, Costa Coffee (now owned by leisure group Whitbread) Aroma (owned by
McDonald’s) and American worldwide operator Starbucks all came into the market, as well as a number
of smaller independents. All these chains offer a wide range of coffees but with varying product offerings
in terms of food, pricing and style (Starbucks, for example, offers comfortable arm-chairs around tables,
which encourage people to linger or work in a laptop in the store). In a London shopping street it is not
uncommon to see three or four rival outlets next door to or within a few yards of each other. However, it
quickly became clear that the sector was overcrowded and, apart from Starbucks, some of the other
chains reportedly struggled to make a profit. In 2002 Coffee Republic was taken over by Caffè Nero,
which also eventually acquired the ailing Aroma chain from McDonald’s. Costa Coffee was the largest
chain overall with over 300 shops throughout Britain, while Starbucks was expanding aggressively and
aimed to have an eventual 4000 stores worldwide.
The future
As work and lifestyles get busier, the demand for convenience and fast foods continues to grow. In 2000,
some estimates put the total value of the fast-food market in Britain, excluding sandwiches, at over £6
billion and growing about £200-£300 million a year. While the growth in sales of some types of fast food,
like burgers, was showing signs of slowing down, sandwiches continued to increase in popularity so that
by 2002 sales wee an estimated £3 billion. Customers are also getting more health conscious and choosy
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about what they eat and, increasingly, want nutritional information about food from labelling and
packaging.
In January 2001, in a surprise move, Pret’s two founders sold a 33 per cent stake in the company to fastfood
giant McDonald’s for an estimated £25 million. They claim that McDonald’s will not have any
influence over what Pret does or the products it sells, but that the investment by McDonald’s will help
their plan for future development. According to Metcalf:
‘We’ll still be in charge—we’ll have the majority of shares. Pret will continue as it does… The deal wasn’t
about money—we could have sold the shares for much more to other buyers but they wouldn’t have
provided the support we need.’
After a long run of success, Pret has ambitious plans for the future. It hopes to open at least 20 new stores
a year in the UK. In late 2002 it opened its first store in Tokyo, Japan, in partnership with McDonald’s. The
menu there is described as being 75 per cent ‘classic Pret’ with the remaining 25 per cent designed more
to please local tastes. In other international markets, the plan is to move cautiously—Pret’s first move
will be to open more stores in New York and Hong Kong, where it has already been successful.
Questions
1. How has Pret a Manger positioned its brand?
2. Explain how the different elements of the services marketing mix support and contribute to the
positioning of Pret a Manger.
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MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes
Case V ‘Fast Fashion’: exploring how retailers get affordable fashion on to the
high street
The term ‘fast fashion’ has become very much de rigueur within the fashion retailing industry. Retailers
have to react quickly to changes in the market, possess lean manufacturing operations, and utilize
responsive supply chains in order to get the latest fashions to the mass market. Stores such as H&M, Zara,
Mango, Top Shop and Benetton have been tremendously successful in being responsive to the fashion
needs of the market. Excellent logistical and marketing information systems are seen as key to the
implementation of the ‘fast fashion’ concept. ‘Fast fashion’ is the emphasis of putting fashionable and
affordable design concepts, which match consumer demand, on to the high street as quickly as possible.
These retailers get sought-after fashions into stores in a matter of weeks, rather than the previous
industry norm, which relied on production lead times ranging from six months to a year. The concept of
‘fast fashion’ relies of a number of central components: excellent marketing information systems, flexible
production and logistics operations, excellent communications within the supply chain, and leveraging
advanced IT systems. These components allow stores to track consumer demand, and deliver a rapid
response to changes in the marketplace. The results are invigorating for fashion retailers, with ‘fast
fashion’ retailers’ sales growing by 11 per cent, compared with the industry norm of 2 per cent.
Within the fashion industry a number of different levels exist, the exclusive haute couture ranges
(made to measure), the designer ready-to-wear collections, and then copycat designs by mass-market
retailers. Fashion has now gone to the high street, becoming more democratic for the mass market.
The traditional fashion- retailing model was seasonal, whereby retailers would typically launch
two seasons: spring and autumn collections. Fashion retailers would buy for these collections from their
supplier network a year in advance, and allow for between 20-30 per cent of their purchasing budgets
open to specific fashion changes in the market. Typically, retailers would have perennial offerings that
rarely change as well as catering to the whims of fashion, such as basic T-shirts and jeans.
Now, through the ‘fast fashion’ philosophy, new items are being stocked in stores more frequently. These
newer product ranges stimulate shoppers into frequenting these stores on a more regular basis, in some
cases weekly to see new fashion items. Savvy brand-loyal shoppers know when new stock is being
delivered to their favourite store. Through increased stock replenishment of new, fashionable items,
consumers are increasing their footfall to these stores, and furthermore these stores are developing
brand images as cutting edge, trendy, and fashionable. This increased footfall, where shoppers regularly
visit a store, eliminates the need for major expenditure on advertising and promotion. Also the concept of
‘fast fashion’ is helping to improve sales, conversion ratios within these stores. Due to the limited supply
of designs available, this creates an aura of exclusivity for these garments, further enhancing the brands
of these ‘fast fashion retailers’ as leading fashion brands.
Famous for ABBA, Volvos and IKEA, now Sweden has another international success story: H&M. The basic
business premise behind H&M is ‘fashion and quality at the best price’. The company now has over 1068
stores in 21 countries. H&M sources 50 per cent of its goods in Europe and the remainder in low-cost
Asian countries. Sourcing decisions are dependent on cost, quality, lead times and export regulations. The
lead times for items can vary from a minuscule two weeks to six months, dependent on the item itself.
H&M believes that having very short lead times can be beneficial in terms of stock control, however it is
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not the most important criteria for all items. Basic clothing garments can have lead times running into
months, due to consistent demand. However, items that are more trend- and fashion-conscious require
very short lead times, to match demand. H&M is now also in the process of teaming up with prestigious
designers like Karl Lagerfeld to create affordable fashion ranges.
The firm utilizes close relationships with its network of production offices and 700 suppliers. Unlike
some other clothing retailers, H&M outsources all of its production to independent suppliers. The dyeing
of garments is postponed until as late as possible in the production process to allow greater flexibility
and adaptation to the whims of the fashion buyer. Items from around the world are shipped to a
centralized transit warehouse in Hamburg, Germany, where quality checks are undertaken, and the items
are allocated to individual stores or placed in centralized storage. Items that are placed in this ‘call-off
warehouse’ are allocated to stores where there is more demand for the particular item. For example, if
pairs of a particular style of jeans are selling well in London, more jeans are shipped from Hamburg to
H&M’s London stores.
Table 6: Some of the key players in apparel industry
H&M Next Benetton
Originated in Sweden Originated in the UK Originated in Italy
Chain has 1069 stores in 21
countries
Has 380 stores in the UK and
Ireland and has 80 franchise
stores overseas
Has a presence in 120
countries and uses a retail
network o 5000 stores
Originally called Hennes &
Mauritz, renamed as H&M.
Sells women’s and men’s
apparel. Doesn’t own any
manufacturing resources.
Motto—‘Fashion and quality at
the best price’.
Sells women’s wear, men’s
wear and homeware. The firm
has a very successful catalogue
business. Targets the top end
of the mass market, focusing on
fashionable moderately priced
clothing
Sell under brand name such as
Benetton, Playlife, Sisley and
Killer Loop. Uses a network of
franchises/partner stores.
Established huge brand
awareness through its
infamous ad campaigns.
Zara Mango Arcadia
Originated in Spain Originated in Spain Originated in the UK
Chain has 729 Zara stores Chain has 770 stores in 70
countries
Chain has over 2000 stores
Zara is the main part of the
Spanish Inditex group and is
valued at nearly €14 billion.
Operates under the mantra of
affordable fashion, and adopts
the principle of market-driven
supply.
Operates a successful franchise
operation (more than half are
franchises). The company
specializes exclusively in
targeting the young female
mid-market.
Operates several different
fascia, targeting different types
of customer, with stores such
as Burton, Dorothy Perkins,
Evans, Wallis, Top Shop, Top
Man, Miss Selfridge and Outfit.
Owner Philip Green also owns
BHS stores and Etam UK
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Sourcing low-cost garments with quick response times is a vital element of the concept. Many of the ‘fast
fashion’ retailers utilize a vast network of suppliers, so that their stores are replenished with latest
designs. Some firms are entirely vertically integrated, where the retailer owns and controls the entire
supply chain. For example, Zara buys its fabric from a company owned by its parent, Inditex, and buys
dyes from another company also within the group. Retailers source their goods from countries such as
China, North Africa, Turkey and low-cost eastern European countries. If cost were the sole basis for
supplier selection, then the vast majority of products would be sourced from the Far East. However, the
lead times for delivery of goods are quite substantial in comparison to sourcing garments in Eastern
Europe (e.g. shipping goods from China can take sex weeks, whereas from Hungary takes two days). As a
result of this, retailers are using a hybrid approach, sourcing closer to markets for more fashionorientated
lines. The drive towards reduced lead times is allowing companies to be more responsive to
market changes. The benefits of such a quick response to market changes are reduced costs, lean
inventories, faster merchandise flow and closer collaborative supply chain relationships.
The concept of ‘postponement’ is a key strategy used within the fashion retailing industry. It is the
delayed configuration of a garment’s final design until the final market destination and/or customer
requirement is known and, once this is known, the garment is assembled or customized. The material and
styles are kept generic for a long as possible, before final customization. A classic illustration of the
concept of postponement is its usage by Benetton. Colours can come in and out of fashion. Benetton
delays when its garments are finally product differentiated, so that this matches what is selling. For
example, a Benetton sweater would be stitched and assembled from its original grey yarn and then, based
on feedback from Benetton’s distribution network as to what colours were selling, the sweater would be
dyed at the very final stage of production. The concept of postponement allows greater inventory cost
saving, and increased flexibility in matching actual demand.The production and logistics facilities for
these ‘fast fashion’ retailers are colossal in that each design may have several colour variants, and the
retailer needs to produce an array of garments in a number of different sizes. The number of stock
keeping units (SKUs) is therefore staggering. As a result, companies require a very reliable and
sophisticated information system—for example, Zara has to deal with over 300,000 new SKUs every year.
Benetton has a fully automated sorting and shipping system, managing over 110 million items a year,
with a staff of only 24 employees in its centralized distribution centres. Mango, another successful
Spanish fashion chain, also utilizes a high-tech distribution system, which can sort and pack 12,000
folded items an hour and 7000 hanging garments an hour.
Many in the industry see Zara as the classic illustration of the concept of ‘fast fashion’ in operation.
The company can get a garment from design, through production and ultimately on to the shelf in a mere
15 days. The norm for the industry has typically run to several months. The group’s basic business
philosophy is to seduce customers with the latest fashion at attractive prices. It has grown rapidly as a
fashion retail powerhouse by adopting four central strategies: creativity and innovation; having an
international presence; utilizing a multi-format strategy; and through vertically integrating its entire
supply chain. For the ‘fast fashion’ concept to be successful, it requires close relationships between
suppliers and retailers, information sharing and utilization of technology. Information is utilized along
the entire supply chain, according to the demand. It controls design, production and the logistics
elements of the business. Real-time demand feeds the production systems.
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Zara is part of the Inditex group of fashion retail brands. This group adopts a multi-format strategy with
different store brands targeting different types of customers. Zara is its key fashion-retailing brand. Zara
opened its first store in 1975 in Spain and has now become a fashion powerhouse, operating in four
continents, with 729 stores, located in over 54 countries. It has become very hip all over the world, for its
value for money and stylish designs. The chain is building large numbers of brand devotees because of its
fashionable designs, which are in tune with the very latest trends, and a very convincing price-quality
offering. Each of the different store brands (outlined in Table- 7) needs to be strongly differentiated in
order for the strategy to work effectively.
Table 7 Number of Inditex stores by fascia
Zara 729
Pull and Bear 373
Massimo Dutti 330
Bershka 305
Stradivarius 228
Oysho 106
Zara Home 63
Kiddy’s Class 131
TOTAL 2265
Figure 3 Zara’s market-led supply
Zara does not undertake any conventional advertising, except as a vehicle for announcing a new store
opening, the start of sales of seasons. The company uses the stores themselves as its main promotional
strategy, to convey its image. Zara tries to locate its stores in prime commercial areas. Deep inside the
lairs of its corporate headquarters, 25 full-scale store windows are set up, whereby Zara window
designers can experiment with design layouts and lighting. The approved design layouts are shipped out
Design
Retail Store
Production &
Supply
Logistics
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to all Zara’s stores, so that a Zara shop front in London will be the same as in Lisbon and throughout the
entire chain. The store itself is the company’s main promotional vehicle.
One of Zara’s key philosophies was the realization that fashion, much like food, has a ‘best before’
date: that fashion trends change rapidly. What style consumers want this month may not be same in two
months’ time. Fashion retailers have to adapt to what the marketplace wants for the here and now. The
company is guilty of under-stocking garments, as it does not want to be left with obsolete or out-offashion
items. The key driving force behind its success is to minimize inventory levels, getting product
out on to the retail floor space, and by being responsive to the needs of the market. Zara uses its stores to
find out what consumers really want, designs are selling, what colours are in demand, which items are
hot sellers and which are complete flops. It uses a sophisticated marketing information system to provide
feedback to headquarters and allow it to respond to what the marketplace wants. Similarly, Mango uses a
computerized logistical system that allows the matching of clothes designs to particular stores based on
personality traits and even climate variances (i.e. ‘It this garment suitable for the Mediterranean
Summer?). This sophisticated IT infrastructure allows for more responsive market-led retailing,
matching suitable clothing lines to compatible stores.
At the end of each day, Zara sales assistants report to the store manager using wireless headsets,
to communicate inventory levels. The stores then report back to Zara’s design and distribution
departments on what consumers are buying, asking for or avoiding. Both hard sales data and soft data
(i.e. customer feedback on the latest designs) are communicated directly back to the company’s
headquarters, through open channels of communication. Zara’s 250 designers use market feedback for
their next creations. Designers work hand in hand with market analyst, in cross-functional teams, to pick
up on the latest trends. Garments are produced in comparatively small production runs, so as not to be
over-exposed if a particular item is a very poor seller. If a product is a poor seller, it is removed after as
little as two weeks. Roughly 10 per cent of stock falls into this unsold category, in direct contrast to
industry norms of between 17 and 20 per cent. Zara produces nearly 11,000 designs a year. Stock items
are seen as assets that are extremely perishable and, if they are sitting on shelves or racks in a
warehouse, they are simply not making money for the organization.
In the course of one year alone, Zara has been able to launch 24 different collections into its
network of stores. After designs have been approved, fabrics are dyed and cut by highly automated
production lines. These pre-cut pieces are then sent out of nearly 350 workshops in northern Spain and
Portugal. These workshops employ nearly 11,000 ‘grey economy’ workers mainly women, who may want
to supplement their income. Seamstresses stitch the pre-cut pieces into garments using easy-to-follow
instructions supplied by Zara. The typical seamstress’s wage in Zara’s workshop network is extremely
competitive when compared with those in ‘third world’ countries where other fashion retailers mainly
outsource their production. Furthermore, the proximity of these workshops allows for greater flexibility
and control, Zara achieves greater control over its supply chain through having a high degree of
integration within the supply chain. By owning suppliers, Zara has greater control production capacities,
quality and scheduling. This is in stark contrast to Benetton, which is close to being a virtual organization,
outsourcing production to third-party suppliers and directly owning only a handful of its stores, the
majority being franchises or partner stores.
The Indian Institute Of Business Management & Studies
Subject: Marketing Management Marks: 100
24
The finished garments are then sent back to Zara’s colossal state-of-the-art logistics centre. Here
they are electronically tagged, quality control double-checks them, and then they are sorted into
distribution lots, ensuring the items arrive at their ultimate destinations. Each item is tagged with pricing
information. There is no pan-European pricing for Zara’s products: prices are different in each national
market. Zara believes each national market has its own particular nuances, such as higher salaries or
higher taxation, therefore it has to adjust the price of each garment to make it suitable in each country
and to reflect these differences. Shipments leave La Coruňa bound for every one of the Zara stores in over
54 countries twice a week, every week. The company’s average turnaround time from designing to
delivery of a new garment takes on average 10 to 15 days, and delivery of goods takes a maximum of 21
days, which is unparalleled in an industry where lead times are usually months, not days. Zara’s business
model tries to fulfill real-time fashion retailing and not second-guessing what consumers’ needs are for
next season, which may be six months away. As a result of Zara utilizing this ultra-responsive supply
chain, 85 per cent of its entire product range obtains full ticket price, whereas the industry norm is
between 60 and 70 per cent.
The successful adoption of the ‘fast fashion’ concept by these international retailers has drastically
altered the competitive landscape in apparel retailing. Consumers’ expectations are also rising with these
improved retail offerings. Clothes shoppers are seeking out the latest fashions at value-for-money prices
in enticing store environments. Now other well-established high-street fashion retailers have to adapt to
these challenges, by being more responsive, cost efficient, speedy and flexible in their operations. The rag
trade is churning out the latest value-for-money fashions at breakneck speed. ‘Fast fashion’ is what the
marketplace is demanding.
Questions
1. Discuss how supply chain management can contribute to the marketing success of these retailers.
2. Discuss the central components necessary for the fast fashion concept to work effectively.
3. Critically evaluate the concept of ‘market-driven supply’, discussing the merits and pitfalls of its
implementation in fashion retailing.

MARKETING MANAGEMENT - IIBMS EXAM ANSWER - Managing the Guinness brand in the face of consumers’ changing tastes