Burberry Marketing Strategy
Burberry is a British company (established in the mid-1850s) that majors in luxury fashion (Doole & Lowe, 2008). The company was founded by Thomas Burberry who, in 1856, opened the first Burberry store in Hampshire, England(Moore & Birtwistle, 2004). Over the years, it has grown into a multinational company, with close to five hundred retail stores established in forty eight countries. The company runs three brands: The Burberry Prorsum which is runway fashion centered, the Burberry London which focuses on official wear and the Burberry Brit which focuses on casual wear (Prakash, 2011). According to its website, its business strategy focuses on continued evolution, meticulous execution, and an effective management that focuses on balance across products, regions and channels (Burberry, 2015). In addition, its innovative designs, focus on digital marketing and its robust retail network give it an edge over its competitors.
The firm joined the international business arena in 1911 and rolled out business in mainland Europe and America. Lack of strategic direction made the organization tumble in the late 1990s, and the effect was felt in 1998 when the company’s annual profits fell from $65 million to $23 million (Doole and Lowe, 2008). Reclaiming its iconic status required the company to redirect its strategy. Therefore, the firm’s models of business such as market communications, manufacturing, product development and distribution were restructured. In the last decade, the multinational Burberry has reorganized itself from being an outwear apparels manufacturer to an inspirational, stylish, and luxurious lifestyle brand. The company’s products portfolio includes fragrances, clothing, footwear, cosmetics and accessories. (Ghauri & Cateora, 2014).
According to Glowik and Smyczek (2011), the company has a vast network of licensing, retail, and wholesale channels globally. It is an established brand, whose priced goods are its greatest asset long history of producing quality products hence building customer trust. The company benefits from celebrity endorsements which make it maintain a fresh and appealing brand (Merritt, 2012; Glowik & Smyczek, 2011, p. 26).
The company has been a victim of being associated with football hooliganism in the UK which tainted its image. In addition to that, the high cost of its goods makes it miss out on a large market of a rising middle class. This tends to put a cap on its profit margins.
The company’s weaknesses lie in expanding its market reach by opening up new retail stores around the world, especially in emerging markets. Additionally, increasing its product portfolio would help it introduce new products which are more affordable to the middle class. In addition, the rising global interest in fashion trend with the advent of social networks is bound to increase the company’s profits.
Major competitors threaten the company every day in terms of availability and pricing. Burberry faces stiff competition from major threats such as Prada, Louis Vuitton, and Gucci. The recent economic recession, which affected the purchasing power of its clients, is also a notable threat.
Analysis of Market Situation
The unfolding of the debt crisis and a global slowdown in Europe set a dark cloud over the luxury market. However, the British handbags and trench coats maker- Burberry, emerged strong. In 2011, the revenues of Burberry rose by 24% to $581 million in the company’s fiscal third year (Kleindl, 2006). The boost in sales emanated from the existing markets in Europe and America. In the home market, the company’s shares appreciated more than 22% in 2011 although its major competitors posted grim statistics at the stock exchange (Zou & Fu, 2011). Additionally, the value of the company’s stock rose by 7% on the Dow Jones Industrial Average. In 2012, Burberry’s market share increased by 1.7% with a market capitalization of about 7,691 million(EY, 2014).
With the improvement in the global financial markets, the growth of the luxury goods market has become eminent. In 2013, the global cosmetics market registered a 3.8% growth, with China, Brazil and the US, making almost half of the global market (EY, 2014). The personal luxury market, on the other hand grew by 2.4% in the same year. A growth of 4.1% is expected in the European, Chinese, and American markets in 2015 and up to 20% in the next 50 years (EY, 2014 p. 4). There is anticipation that the clothing industry will remain on a rise that is steady. The spending on apparels and fashion in China is set to go up. In China, online shoppers are set to increase by 10.2% while hypermarkets shopping customers will fall by a 3.3% margin. A survey by Paul (2008) depicts that profits from sale of outfits will rise in 2015 and increase rapidly over half a decade.
External and Competitive Analysis
The Asian and Far East markets have emerged as some of the leading luxury goods consumer markets, prompting a number of luxury fashion and cosmetics companies to venture into the markets. This has been in an attempt to increase profitability by venturing into untapped markets, following stiff competition in the European and American markets. These markets, for instance, represented an 80% increase in the cosmetics market growth in 2013, with consumption in China making up for 29% of the total global sales(EY, 2014). Burberry has, like others, been tempted by the appeal of these markets, proceeding to open retail stores in China. The Chinese market , specifically, holds a lot of promise due to the large size of its upper-middle-class and wealthy consumers. Burberry’s competitors include brands like Prada, Louis Vuitton, and Gucci. The company stays ahead of the competition through use of a competition pricing strategy and a viral marketing approach where its name and products have a constant presence in advertising channels. Their marketing is mostly done online and in print media.
Burberry has a vast network of licensing, retail, and wholesale channels globally- 500 retail stores established in forty eight countries (Moore & Birtwistle, 2004). It is also an established British brand, whose priced goods are its greatest asset long history of producing quality products hence building customer trust. These have helped the company accumulate assets due to continued profitability that has fuelled its growth into a multinational company. For example, in 2011/2012, the company’s total revenue grew by 24% to £1,857m (Burberry, 2012). The company, therefore, has adequate capital to fund its desire for foreign expansion.
Despite the fact that the company has already established some stores in China-57 according to Griffith (2012), it should consider increasing their number by venturing into untapped Chinese provinces. In a nation of over a billion peoples, where the upper-middle-class is expected to double by 2017(D’Arzipio et al., 2014), 57 stores can hardly be enough. In short, the Chinese market is yet to be fully exploited. Considering that its competitors have also established stores in the region, the company should ensure continued competitiveness and growth by implementing the Ansoff growth strategy matrix- market penetration, market development, product development and diversification.
Figure 1: Ansoff growth matrix. Adapted from Schultz (2004)
The Target Market
Asian and Far East markets have become very significant in the global luxury industry. For example, these markets represented an 80% increase in the cosmetics market growth in 2013, with consumption in China making up for 29% of the total global sales(EY, 2014). The place offers great potential for luxury and fashionable goods. Asia is that the area is radar of numerous luxury brands around the globe. Again, there is an emerging class of wealthy personalities in Asia who can consider the exclusive goods due to their increased purchasing power (Ghauri & Cateora, 2014). Burberry faces challenges like too much familiarity in Europe and America. In the past, organizations had no intention to debut their ideas in Asia, with majority of their product launches initially happening in Europe before hitting Asian markets(Kleindl, 2006). However, in recent years, many brands have started rolling out their operations to Asia.
Malaysia, Thailand and China are rapidly growing into notable fashion markets. Various events happen in these countries to create fashion awareness. Examples are Sofitel So in Malaysia, Pyong Premier in China, and the Exquisite Grand in Thailand (Terpstra et al., 2012). Of the three, China seems a better option for Burberry due to its large market size, increased foreign travel into the country (EY, 2014), and a significant consumer base with a huge purchasing power. Besides, the largest population of the newly minted billionaires is currently based in China (Terpstra, Foley, & Sarathy, 2012; Ghauri & Cateora, 2014)- the ultra wealthy individuals who are part of major exclusive clubs in the world where style and elegance dominates. Therefore, the wealthy class together with the extensive Chinese market makes the country a good destination for Burberry to venture into. Additionally, China offers cheap labor in terms of production, evidence of this being that major competitors pitching camp in the Asian country such as Gucci and Prada (Kleindl, 2006).
Segmentation, Positioning and Targeting Strategy
Kaynak (2001) alleges that in modern marketing, STP is a popular strategic approach. Segmentation, targeting, and positioning are commonly abbreviated as STP. When creating communication plans of marketing for companies like Burberry, the STP model enables marketers deliver and develop relevant and personalized messages and prioritize propositions to involve different audiences. It is less of a product-focused rather than an audience approach to communications that helps in the relay of messages to audiences that are commercially appealing (Kaynak, 2001, p.58).
The Burberry brand is a symbol of wealth and status- a strength which the company should exploit in China. With clothing, the company should, therefore, target high income earners (over $100, 000 annually). The company should continue to use its competitive pricing strategy to ensure the products remain expensive, rare and, hence, desirable. Besides high-end clothing, the company produces accessories and fragrances that are relatively cheaper and affordable to the average person. Therefore, targeting the Chinese middle class would prove important in maximizing sales. The firm should target both women and men aged 20 and above from middle-income and upper class households. This audience consists of consumers that are comfortable with modern technological trends such as social media, and are conscious about fashion and fashion trends. Finally, the most important of these is that they have financial ability and are capable of making independent consumption decisions.
Market Entry Strategy
For a company like Burberry that considers extending its business activities into the international arena, a market entry strategy is critical. The reason is that it affects the entire business planning and marketing process. Moreover, cultural barriers may arise that have the potential to cause a business’ market failure. Considering that China is a highly culture sensitive nation with long standing traditions(Khairullah & Khairullah, 2013), Burberry should consider entering the market through joint ventures or licensing.
Joint ventures are arrangements between two or more parties or companies that are competing. The organizations join forces to invest with every party holding a share in the management and financial running of the business. They offer various benefits such as a shared capital outlay and reduced risk where government interference is minimal(Terpstra et al., 2012). However, joint ventures are disadvantageous in that there may emerge conflicts of interests between the parties. The disagreements may stem from marketing strategy, profit shares, management, and capital invested.
As an alternative to joint ventures, Burberry could make use of licensing/franchising. Franchising can be described as a way of licensing, where Burberry being the franchisor, would give a competitor the rights to use their brand and trademark, using its manufacturing skills, producing products that are patented and receiving marketing and technical know-how and advice. Licensing and franchising have various benefits as both are quick and simple to implement(Zou & Fu, 2011). The members shoulder the costs of the business. It offers access to markets that are usually closed by the government due to policies. It has a drawback in that there is reduced revenue as compared to other modes of entry. Notably, control over marketing and production lacks.
While these strategies have their respective shortcomings- most notable of these being having to make shared decisions and sharing profits- they would give Burberry the advantage of having a presence in China, while at the same time minimizing the risks associated with operating in a foreign market. Besides, it would be easier to market products in collaboration with established Chinese companies which are assured of a market share and consumer loyalty.
A marketing mix, in the form of the 4Ps (product, place, pricing, promotion) should be adopted.
Burberry is renowned for its expensive clothing, luxury goods and accessories. In China, the company will maintain this image by catering to the famous and elite classes that can afford its products. Burberry dominates as a classy brand with items that are manufactured targeting the wealthy people in the wealthy class. The precise and detailed skills, unique and intricate designs high-quality materials, use of innovative technology and superb qualities have retained the company at the top.
The brand offers its clients attires that are representative of sophistication and class. The company should also offer the same to its Chinese consumers. Examples of products to be introduced to the Chinese market include: the woolen Burberry suits, cardigan-styled jackets with black embroidery and golden buttons, and a knee-length skirts. These will come in colours like black, neutrals, pastels, the company’s trademark checked print, and grey, etc. There will also be complimentary accessories like jewellery, shoes, and purses. Considering that the Chinese have their traditional dresses- hangfu– which they may not be willing to drop, Burberry should consider stocking its items alongside the Chinese traditional and cultural outfits, or rather producing clothes designs that are in line with the Chinese culture. In addition to clothing and accessories, the company will also stock fragrances and other cosmetics.
Setting prices for commodities is tasking since it involves decision making that is integrated at all organization levels such as tactical planning, strategic planning, and execution level of planning. Terpstra, Foley, & Sarathy (2012) allege that Burberry’s aim is avoiding compromise on quality and also providing products that are exquisite. Burberry’s products are considered high end and mostly suit successful business persons, celebrities, or persons from wealthy backgrounds. This is because they are very expensive- which is understandable because the company produces high quality and long lasting clothing. The company uses gabardine to produce long lasting, hard-wearing garments.
Burberry uses competition pricing where its prices are usually similar to those of its competitors. Its main competitors include established companies like Gucci and Louis Vuitton. The intended effect in that case is that customers judge the quality of clothing on the basis of price(Merritt, 2012). Where another company offers similar products at a lower price, customers deem them to be inferior in terms of quality. Its strength lies in the cost of its products. That is, being expensive, they are a rare brand hence desirable. Customers take pride in wearing Burberry’s brands, which are a symbol of wealth and class. The company should also implement this strategy in China.
Burberry operates over 500 boutiques worldwide (Moore & Birtwistle, 2004). According to Griffith (2012), 57 of these are in China. Burberry should consider raising this number to at least 100 stores. Since the brand’s consumers comprise of the rich, the stores should be set up in particular affluent and prominent areas, specifically in cities that are frequented by tourists. For example, In Beijing, stores should be located in Xi Mall and Yong Plaza because they are the main places where the wealthy frequent. Some stores will be situated in airports to target travelers, a good number of whom are the elite and wealthy class.
Each store will reflect the chic and expensive brand’s image. With the boutiques being located in malls and business centers in China’s cities of Beijing, Shanghai, Hong Kong, Huangshan, and Suzhou, the company will need to put in place a strategy to reach out to consumers outside the major cities. Chinese consumers are avid technology users and digital content consumers (Kaynak, 2001). In that case, the company should establish eCommerce platforms for clients to shop online, and hire professional dealers trained efficiently on supply chain management and item distribution. The scheme will result in maximum sales and facilitate in product advertising. In addition, online sales will help the company collect demographic data that should be used in refining the market strategy.
In China, Burberry should advertise on print and digital media to promote its products. Influential magazines that are a preference of the rich and fashion magazines that are important in shaping the country’s fashion trends should be used. Apparently, these magazines cater to buyers that are influential. An example is “Marie Claire”, a stylish and glossy magazine that attracts readership among the wealthy professionals as well as aristocratic and genuinely productive men and women (Paul, 2008). Advertisements published in these magazines become strategically profitable since viewers frequently check upcoming and new trends from the same. Just as the company has used celebrity endorsement to popularize the brand in Europe, endorsement of Chinese celebrities and trend setters should be done in China. To supplement these, the company should host store launch parties and fashion events in China to create awareness and promote its products. Finally, as mentioned earlier, Burberry should consider internet marketing to increase online sales. The move will be facilitated by the fact that the Chinese have embraced online models of shopping. An ideal example is Alibaba where consumers place orders and pay for goods that are later delivered to them swiftly (Kaynak, 2001).
Burberry continues to face stiff competition, especially in its traditional markets in Europe and America. As the Asian markets continue to become increasingly significant in the global luxury market, a venture into the Chinese market by Burberry seems a viable option. This will help the company increase profitability and sustain its growth. However, considering that venturing into new markets is associated with risks and uncertainties, the company should consider a joint venture or licensing as its market entry strategies.