Where, Q – Quantity of the good in question
P – Price of the good in question
& a, b > 0
Differentiating the demand function w.r.t price, we get,
dQ/dP = -b < 0 ,
confirming the negative relationship between Price and Quantity demanded of a good.
The related concept that is used in the discussion of the report is of the Shifts in the demand curve, and the movements along the demand curve. In this regard, it should be noted that whenever the quantity demanded changes due to changes in the price of the good in question, there is movement along the demand curve. On the other hand, whenever demand increases (or decreases) due to changes in factors other than price of the good in question, there is a rightward (or leftward) shift in the demand curve. The major factors that contribute to shifts in the demand curve are:
- Change in consumer tastes & preferences
- Change in price of relative goods
- Change in income of the consumers
- Change in seasons or weather conditions.
Factors affecting the Demand for M&S products.
- Change in tastes of the consumers
There was a general trend amongst the shoppers to dress up in a manner so as to look younger, and not vice-versa. But the clothing line of M&S failed to appeal to the customers in this regard. Hence, there was a decline in the demand for the kind of clothes sold at the M&S stores, which was a result of a leftward shift in its Demand Curve.
Initially, M&S did not rely on advertisements for promotions. But due to the recession that it faced, it decided to promote its brand by ad-campaigns. It’s first ever commercial, was critically laughed at and thereby neither did it attract new customers, nor could it retain the existing ones. As a result, its demand curve suffered a leftward shift.
- Low quality for a higher price
M&S was criticized for overcharging for poor quality in its range of garments for the fuller figure, for which it was promoting its brand. This attacked its supposed core value: a reputation for better quality that justified a slight price premium. This had a negative impact of the brand in the minds of the customers, who now no longer could equate the high price with their respective marginal utility, which was now lower than the price they were paying for the low-quality products. Hence, the company suffered a setback in terms of declining demand for its products.
- Presence of competitors in the market
M&S stores could hardly match to the jazzy store layouts of rivals such as GAP or Hennes & Mauritz. Being a late-comer in terms of makeover or innovations, it missed out on the retailing revolution that began in the mid-1990s, when its competitors like GAP and Next were constantly innovating in terms of marketing gimmicks, attractive displays, credit transactions, etc. The result was a huge loss in its customers, for whom, substitutes were available in the market. This phenomenon was not only restricted to its clothing line, but entry of competitors affected the share of M&S even in the food market. Even though M&S was the first to spot a gap in food market, it gradually lost its advantage as mainstream food chains copied its formula.
At a time when its competitors were putting together global purchasing networks to arrest the increasing costs of production, M&S stuck to its ‘Buy British’ Policy. This proved to be a hindrance to M&S being more responsive to the high costs linked with the strength of the British currency. These high costs reflected in their high product prices and this, in turn, resulted in the falling demand for its products.
Apart from the brand level factors, there were external factors affecting the clothing industry. Changing demographics resulted in an overall decline in the demand for clothing. This was because now, an ever-increasing share of consumer spending was being done by the affluent over-45 years of age. They were less inclined, than youngsters, to spend a high proportion of their disposable income on clothes.
Weaknesses and threats faced by the demand side of M&S due to controllable and uncontrollable factors.
Toward the end of the 1990, M&S was still pointing to results that were the envy of other retailers (as evident by the table 1).
Table 1
The wheels, however, were about to fall off. On 3 November 1998 M&S announced a 23% fall in half year operating profit from £428m to £327m. This was the first drop in profits in thirty years and it was the first time in M&S history that sales had declined significantly. In Britain, market share slipped to 12% from 15% during 1998. Despite increasing floor space, sales in the 15 weeks to Feb 9 1999 were 6.4% below the same period in the previous year. By the end of that financial year annual pre-tax profits halved from £1.2 billion to £546 million. Almost £400m of the decline was in the core UK retail business.
There were a number of controllable and un-controllable factors working on the demand side, which affected the sales volume and the market share for M&S.
Weaknesses (a consequence of controllable factors)
- The management at M&S was so much in love with their traditional ways of working that they could hardly identify the need to change. The company managers simply rested on their past laurels and harked back to old glories. This left the company without any ability to innovate according to the prevailing market trends.
- M&S became increasingly inward looking with regard to relying on traditional UK suppliers without looking at what customers wanted. This also made the company smug with regards to working with suppliers to improve.
- There was a decline in the quality of the products offered, which dismayed the customers who were now not ready to pay a price premium for such poor quality clothes.
- The company did not take up promotions before the decline in profits. But, in 2000 it released its first campaign to promote a clothing line for fuller women. This advertisement however, was highly criticised and further affected the fall in demand for its products.
Threats (a consequence of un-controllable factors)
- From a socio-environmental perspective, there were changes in demographics and spending patterns. An increasing share of consumer spending was now done by the affluent over 45s, who did not spend a considerable part of their incomes on clothing.
- Also, there were changes in the tastes & preferences of the consumers in the market. The older customers now wanted more colour in their clothes, in contrast to the younger generation who preferred more of demure clothes during this period.
- What made matters worse were the Economic factors like the growing strength of Sterling on global currency markets, making M&S products increasingly expensive. Moreover, there was a substantial slowdown in retail spending at home.
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Adding to the threats faced by the company was the entry of competitors. On the one hand, heavy discounters and supermarkets like Asda and Tescos moved into M&S’s segments, utilizing aggressive marketing, cheaper overseas production facilities, and mail order or Internet distribution channels. On the other hand, newer retailers such as Next and Debenems were also utilizing cheaper production, combined with more fashion conscious branding and design, then feeding back data as to what people were actually buying, to provide clothes that were significantly more targeted and desirable to most people than M&S, but not significantly more expensive.
All the weaknesses and threats that M&S faced reflected in the company’s performance, as confirmed by the figures in Table 2 below.
Table 2
Changes made to the Marketing mix elements by Marks &Spencer.
M&S launched 26 new stores in a serious effort to overcome the slow down. The interiors underwent a drastic makeover, with the introduction of marble floors, plain rows of clothes racks being replaced by designer displays and roomy walkways, and the overall look of the store was made to resemble a modern shopping mall.
In order to promote their clothing line for the fuller figured women, M&S launched its very first Television advertisement campaign, featuring plump naked women on mountains.
M&S had always held the reputation of selling better quality products at a premium price. But consumers felt they were being overcharged w.r.t the quality of the product offered. After decades of having launched their own store card, they began accepting credit cards. In order to stay in the race, M&S slashed interest rate on their own card. They also sold personal loans and unit trust investments through their financial services department.
The garments that were introduced by M&S for the “Fuller figure” were poor in quality.
In addition to this, the fasion judgements made by them were incorrect. The middle aged consumers, who were the affluent over-45s, contributed to the maximum share of consumer spending. The tastes and preferences of these consumers was gradually changing over this period of time. They became more fashion consious and preferred clothes that were usually worn by the younger population. This change in the needs of the consumers was not catered to by M&S.
Besides the fancy convenient foods that were being sold, M&S introduced in house bakeries, delicatessens and meat counters in an attempt to follow its rivals.
Brand Management Strategy of M&S
Branding is the creation of a desired image in the minds of the consumers and its reinforcement by achieving ace performance and consistent effective communication.
The core value that M&S wanted their consumers to associate them with was a reputation for better quality that justified a slight premium price. The company was relying heavily on the Brand Name that it had build over the years and gave undue hype to their success stories & innovations in the past.
There was a wide gap between what the managers’ presumed the messages behind the strategies were and what the brands' marketing promotion efforts communicated. As was the case with their first TV ad commercial which featured plump naked women on mountains which created the brand image to be looked at very poorly.
They also had other promotional activities like revamping of the stores to make the customers’ shopping experience more pleasurable and the introduction of their own shop cards to enhance brand visibility and brand recall value. These promotional activities received limited success and the competitors caught up at a quick pace.
Their product range was outdated and they could not keep up with the change market trends.
M & S was losing its brand image and position in the industry. It was desperately trying its best to keep up with time and competition. New strategic approaches needed to be implemented to hasten the recovery.
They needed to improve product appeal, availability and value thereby rebuilding the relationships with core M&S customers. Some of the steps that could be followed to rebuild the brand image are as follows:
- Recovery plan for Clothing
The Company needed to plan to regain the confidence of its customers in the quality and fit of its clothing. It needed to sharpen pricing by rebalancing the price architecture, extending the range of entry-price merchandise and communicating this clearly to customers.
- Expansion in growing product areas such as Food Industry etc
The company should expand in businesses where it has earned and maintained the customers' trust for providing quality, innovation and convenience. It should consider opportunities to expand these avenues through new locations and selling channels.
- Acceleration of store renewal programme
M&S should accelerate the rollout of the successful elements of its new concept format under a plan to refurbish more stores faster and at lower costs thereby benefiting the majority of M&S's customers.
- Being closer to the customer
In order to be more customer oriented, some proactive steps should be taken by M&S. The focus should be on winning over their trust and gaining their loyalty. It needs to create a more attractive, easy-to-shop environment for the customers and enhance customer value perception.
Changes made to the elements of the “Value Chain”
A value chain is a chain of activities within and around the organization which together add value to the products and services. Products pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities.
Marks & Spencer made changes in the following elements of the value chain in an attempt to deliver goods to its customers in a better way, improve profitability and foster competitive advantage in the market place.
M&S spotted a gap in the food market and decided to capitalize on it. The offshoot of this was better floor space utilization that gave them an edge over the competitors. Food took up only 15% of floor space but accounted for around 40% of sales.
M&S decided to use the television media for promotional activities by featuring their first ever ad campaign. The Ad campaign was unsuccessful as it triggered negative sentiments among the audiences.
M & S redesigned their store in ways that give space, convenience, and comfort to customers while they are browsing, fitting and shopping. They gave their shopping malls a facelift with modernist chrome and creamy marble floors. They replaced their dreary row after row of racks with roomy walkways and designer displays. They also had expansion plans to launch 26 other such stores in Britain.
They also launched their own store cards. However during the course of time this strategy failed and they started accepting credit cards to adapt to the market requirements.
A key for sustainability of all organization is to change and evolve continuously to match with its environment outside its window in which it operates. Until the late 1990s, M&S had been very successful. It worked to achieve this esteem by applying a structured formula to all its operations and maintained it by establishing a set of fundamental principles, which were held as core to the organization and used in all of its business activities since its birth. Their paradigm helped them in the past but the same paradigm didn’t work from 1991 and they went through a strategic drift.
Though the above changes were made by the company to foster growth by enhancing customer value, the results contradicted this. Marks & Spencer should have emphasized clients’ satisfaction by delivering up-to-date, fashionable, high quality garments to the customer accompanied by affordable competitive prices.
They should have focused on improving the procedures on their inbound logistics, operations, suppliers, and many more. Their warehouses should have been made clear of old stocks to give way to new up-to-dated stocks. The packaging of their products should have also been given due consideration. They should have considered purchasing supplies from overseas to save cost so as to provide the products at a lesser price.
Conclusion
Marks and Spencer were not proactive in their strategy making and were unable to keep up with the changing market pace and the pressure of competition. Lack of customer sensitivity and orientation lead to the decline through the 1998 to 2001.
References
The Strategy Path finder, Stephen Cummings and David Wilson
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Marks & Spencer PLC - Case study written by Georgios Karaliopoulos and Oriol Amat, Department of Economics and Business, Universitat Pompeu Fabra (Barcelona).