H&M Report

To What Extent is H&M Market Oriented? What Evidence is there in the Case to Support Your View?

Market orientation is defined by Song (2003) as the business philosophy that helps a company to identify customer needs and act as per the needs. According to Song (2003),a company is forced to bend to the buyer power through a pricing and trend strategy that suits the consumers best. H&M is a highly market oriented company and it is determined to discover a trend before the competitors do. Now that the world is turning into a global village, market orientation is an ideal practice for the companies to pursue in order to remain relevant in the business. It is essential for the company to study how interaction around the world affects trends and fashion, taking into consideration the fact that H&M does business around fashion. H&M has been able to conduct market orientation in four levels. The first level is identification of growth sector and opportunities through its market segmentation strategies. The second level is identification of products that are currently in demand; a broad and flexible research and design team are usually used to identify those. The third level is research on using competitive edge that suits the business type. In the third level H&M has tried to research on how market segmentation and use of its principles across the global market would impact its business. The fourth level is focusing on long-term goals and objectives. H&M has taken an approach of developing loyal relationships with its customers as a part of its long-term strategy.

There is enough evidence to state that H&M is a market oriented company. The evidence is found in the four levels of market utilization that H&M uses. Such elements as a decentralized business operation system in H&M make the four levels of market orientation easy to adopt. The decentralized system of running operation allows division heads to develop products as per their consumer base rather than from dictation by the headquarters. The research team is also supportive as it conducts door to door research to identify consumer needs. It is worthy noting that the fashion industry is a perishable market and H&M treats it accordingly. Consumers demand low cost fashionable items, as they are aware of the fact that fashion is a subject to a constant change. H&M offers just the right products in terms of quality and prices that the consumers require, especially considering the fact that its target market comprises of young people whose financial situation is not that stable.

Identify and Discuss the Bases for Segmentation that H&M Adopts. Explain the Benefits and Risks Associated with the Practice of Segmentation

There are a number of segmentation bases that H&M uses in its marketing strategy, all these are based on price, quality and trends. Cheap and trendy products are the most important base for H&M, as these are largely aimed at both high-end and low-end consumers. Other than the price and quality, H&M also utilizes the bases of age, geographic location and income to identify consumer needs.

The foremost benefit of market segmentation is that it helps businesses to identify why consumers do or do not buy certain products (Kotler 2000). For example, in the case of H&M the departmental and division heads are working in close contact with consumers so as to identify why certain products are still on shelves. At the same time, market segmentation helps the business to design and implement a more effective marketing strategy. In such a way, being a part of marketing strategy, segmentation helps a company to identify certain consumer needs and then roll out the effective strategy that suits best the consumers of a particular geographical region. H&M achieves its goals and objectives by identifying with such customer needs as price and trends. This marketing strategy gives H&M a competitive advantage over it rivals such as Gap Inc, whose fashionable products are rather expensive. Unlike Gap Inc, H&M utilizes identification of different target markets, such as the financially stable and the financially weak consumers, or people with high and low incomes. H&M also “offers alternatives for consumers who may be bored with chinos and cargo pants but not able to or willing to trade up for more fashion” through the market segmentation benefit of better assessment of competition (Kotler 2000).

Despite the great amount of benefits brought by market segmentation, it also has some negatives affects on H&M. Huge costs incurred in subdividing the market targets is one of the examples of how market segmentation can have a negative impact on a company (Kotler 2000). Market segmentation involves subdividing the target market into segments or groups that suit different consumer needs. For example, there are consumers who may identify themselves with cheap, low quality trendy products while others identify themselves with expensive, high quality non-trendy products. This requires a company to conduct an intensive research to identify the consumer needs. In the case of H&M, such research consumes about 4% of its total revenues, which is quite a significant amount. At the same time, the subdivision of the company market does very little in helping to shape the brand equity of a business. This is because the segmentation leads to proliferation of products, and thus it is not easy to identify the company with certain products (Kotler 2000).

What are the Marketing Benefits to H&M of Commissioning Karl Lagerfeld, Stella McCartney and Matthew Williamson to Design Limited-edition Clothing Ranges?

Limited edition clothing is desirably beneficial in three scopes; brand equity, consumer satisfaction and push stock through. H&M pursued a strategy of commissioning Karl Lagerfeld, Stella McCartney and Matthew Williamson at the right time, before recession and after recession. The commissioning played a vital role in initiating and developing the brand equity of the company. The quick one-time sales enabled consumers to develop a special attachment to the company and become more loyal. In such a way, consumers were involved in speculation of H&M. Considering the fact that curiosity creates awareness, this was a right  marketing strategy to pursue. Okonkwo (2007) identifies that the limited-edition clothing shapes a company in four ways: reducing overstocking, making every product a limited edition product, meeting consumer needs for individualization, and establishing a fast design turnover.  Okonkwo (2007) explains that the commissioning of Karl Lagerfeld and Stella McCartney is a sure way of evaluating retail innovation. In his explanation, Okonkwo (2007) points out that the limited edition activity creates a room for “high shopping traffic and style conscious consumers”.

As per Okonkwo (2007) suggestions, H&M “seized on the fact that what’s in fashion today will not be tomorrow” and thus tried to make quick sales. The output by the three designers helped to push the already existing stock. The consumers tried to identify themselves with H&M by trying on some old existing pieces from the company's stock. Moreover, the company has benefited from the quick sales at a time when most companies were struggling to make sales after recession. After and during the recession, a majority of consumers were suspicious about new products in the market. However, with a customized limited edition, consumers would not give a blind eye on the products either. At the same time, the introduced limited edition would make an impression on the consumers and “make them believe” that each of the H&M products is customized on a limited edition level. Most importantly, limited edition products tend to reach out to consumer demands better than the existing mass production of clothing, because each consumer wants to look at least a bit different from others. Limited edition platform gave the consumers a benefit of looking unique, and, therefore, made an investment in building the company's brand equity.

What Marketing Challenges are Likely to Face H&M in the Future?

Daft (2013) and  Okonkwo (2007) point out that the foremost challenge that H&M is likely to face is a threat of new entrants and existing companies that use principals similar to those employed by H&M.  Zara is a great example of the currently existing H&M competitors. It goes without saying that it would be difficult for H&M to conduct a successful marketing strategy while facing a tough competition. Currently, the company relies on market oriented marketing strategy, which could simply be copied or outperformed by competition in the nearest future. If similar companies use the same techniques as H&M, then there will be a great amount of similar products in terms of quality and price on the market  and consumers will be torn between the companies and brands. In such a case, the company will be forced to reduce its selling price or cut the cost of production. No matter which way the company chooses, it may face even more challenges and may even end up in a loss. For example, one of the possible scenarios is that the company reduces its retail and wholesale prices. If that is the case, t company might simply not make a sufficient profit, especially if its stock does not flow. On the other hand, if the company chooses to reduce the cost of production, the first expense it will cut on is the research and design department. In result,  the quality of the products might be lowered. At the same time, the threat of new entrants and the existing high level of buyer power might make the company to follow the consumer demands concerning its pricing strategy. Consumers have the opportunity to switch to other brands that offer similar products at lower prices. In such a way, consumers are likely to dictate  H&M to the approach it should take towards pricing its products. It is important for H&M to understand that the existing strategy of market orientation will not be applicable when the competition gets tough. In such a way, H&M is strongly recommended to come up with a new competitive advantage to improve its marketing strategy.

Another major challenge that H&M is likely to face is the destabilization of the company through it decentralized management system. Considering the fact that the brand equity of H&M is rather low, this makes a serious issue for the company to work at. With its decentralized system, the company may face the challenge of dealing with financial crisis as per the regional activities. H&M has units of  all over the world and when financial crisis strikes, it will spread all over the world. Divisional heads might find it difficult to deal with financial crisis as they are expected and used to handle their own problems only.