Name程家琪 tudent no.:17307100075 CATER TO CUSTOMERS' NEEDS SECOND THOUGHTS ABOUT A STRATEGY SHIIFT Jiaqi Cheng 17307100075 Course: English for Academic Purposes(Business) Date: 21 December 2018
Name:程家琪 Student No.:17307100075 1 CATER TO CUSTOMERS’ NEEDS: SECOND THOUGHTS ABOUT A STRATEGY SHIFT Jiaqi CHENG 17307100075 Course: English for Academic Purposes (Business) Date: 21 December, 2018
me程家琪 Student No: 17307100075 I Case summary After Augustin was recruited as the leader of Emilia, a century-old retailer company in Spain whose original target customer group was middle-aged women purchasing only goods on sale, he decided to change the pricing model as well as the indoor decorations of it The old and new pricing model's influence on customers and Emilia itself is showed in Table 1 Customers Emilia Old Pricing model: uy products hose. Spend a huge amount Weekend promotion IgIn rices were of money executing artificially inflated sales and promotions Seduced to buy more than while gainingthe what they indeed need same gross profit New pricing model: Offered products of the. Save a considerable Every Day Low same prices every sum of executing g Prices which are even lower thancost Table I Two pricing models influence on customers and Emilia It could be told from the table above that the new pricing model is expected to effectively release both sides of the transactions from a mutual victimization dilemma brought by the old model. However, the decreasing customer traffic and revenue indicated that the result of the new model turned out to be disappointing. Besides, the laborately decorated indoor central plaza failed to exert a lasting influence among the young generation. Therefore, the board decided to let Emilia go back to its former 2. Emilias customer segments Two customer segments were involved in Emilia's strategy: the middle-aged women and the young generation. The two groups have diverse features and
Name:程家琪 Student No.:17307100075 2 1.Case summary After Augustin was recruited as the leader of Emilia, a century-old retailer company in Spain whose original target customer group was middle-aged women purchasing only goods on sale, he decided to change the pricing model as well as the indoor decorations of it. The old and new pricing model’s influence on customers and Emilia itself is showed in Table 1. Customers Emilia Old Pricing Model: Weekend Promotion Buy products whose original prices were artificially inflated. Seduced to buy more than what they indeed need. Spend a huge amount of money executing sales and promotions, while gaining the same gross profit. New Pricing Model: Every Day Low Prices Offered products of the same prices every day, which are even lower than most retailers’. Save a considerable sum of executing cost. Table 1 Two pricing models’ influence on customers and Emilia It could be told from the table above that the new pricing model is expected to effectively release both sides of the transactions from a mutual victimization dilemma brought by the old model. However, the decreasing customer traffic and revenue indicated that the result of the new model turned out to be disappointing. Besides, the elaborately decorated indoor central plaza failed to exert a lasting influence among the young generation. Therefore, the board decided to let Emilia go back to its former policy. 2. Emilia’s customer segments Two customer segments were involved in Emilia’s strategy: the middle-aged women and the young generation. The two groups have diverse features and
Name程家琪 Student No: 17307100075 preferences and figuring them out could be helpful for Emilia to develop targeted arketing strategies catering to their needs respectively The features of both group are showed in Table 2 Features The middle-aged Price sensitive women Shopping for the whole family Enjoy the satisfaction and excitement brought by discounts The young generation L ove so g Obsessed with Internet Table 2 Features of two customer groups It could be analysed from Table 2 that the reason why the new pricing model failed to attract the middle-aged women in spite of the fact that the prices offered by it were indeed lower than products in other retail stores was that the new model lacked discount products acting as incentives. So to win them back, Emilia could find a substitute for them which can fulfil the middle-age's needs for excitement in a similar way.(4.1.2 Good Bargains"plan) for the young generation, their main feature is their growing obsession with Internet just like what has been mentioned by Maria. Although Augustin said that they were planning to replicate the indoor experience online, its declining influence among the young showed that they were not doing well enough. Emilia could establish more connections between online and offline shopping and socializing platforms, providing customers with a coherent experience to ensure its continuous reputation among the young generation.(4.2. 1"Online to Offline"omnichannel strategy) 3. Emilia,s current situation Clarifying Emilias own strengths and weaknesses, as well as the opportunities and threats that it confronts is of significant importance 3.1 Strengths and weaknesses
Name:程家琪 Student No.:17307100075 3 preferences and figuring them out could be helpful for Emilia to develop targeted marketing strategies catering to their needs respectively. The features of both group are showed in Table 2. Features The middle-aged women Price sensitive Shopping for the whole family. Enjoy the satisfaction and excitement brought by discounts. The young generation Love socializing. Obsessed with Internet. Table 2 Features of two customer groups It could be analysed from Table 2 that the reason why the new pricing model failed to attract the middle-aged women in spite of the fact that the prices offered by it were indeed lower than products in other retail stores was that the new model lacked discount products acting as incentives. So to win them back, Emilia could find a substitute for them which can fulfil the middle-age’s needs for excitement in a similar way. (4.1.2 “Good Bargains” plan) As for the young generation, their main feature is their growing obsession with Internet just like what has been mentioned by Maria. Although Augustin said that they were planning to replicate the indoor experience online, its declining influence among the young showed that they were not doing well enough. Emilia could establish more connections between online and offline shopping and socializing platforms, providing customers with a coherent experience to ensure its continuous reputation among the young generation. (4.2.1 “Online to Offline” omnichannel strategy) 3. Emilia’s current situation Clarifying Emilia’s own strengths and weaknesses, as well as the opportunities and threats that it confronts is of significant importance. 3.1 Strengths and weaknesses
Name:程家琪 Student No: 17307100075 Strength Augustin has carried out many successful cases in the retail industry Emilia has a good reputation and a considerable user base as a century-old retailer Emilia has stores all over Europe (Spain, France, Italy), thus facing with a broader market Weaknesses The company cannot afford a four-year loss(211 million EURO in the first year) Table 3 Strengths and weaknesses According to Table 3, Emilias competitive advantages were its reputation and company scale as an established brand which Augustin did not make full use of. As a company owning branches in foreign countries and having a long history, emilia failed to turn them to its advantages but chose to take the same promotion strategy as its small-scale local competitors did, which was not effective enough to differentiate it from others. Emilias KSF(Key Success Factors) should be something exclusively owned by it and hard for its competitors to replicate due to their limited resources or influence. (4.1. 1"Annual Promotion" plan) In terms of its weaknesses, although Augustins new pricing model might work in the future, the financial burden made it tough for Emilia to survive the four-year experiment period, it was in urgent need of finding a way out 3.2 Opportunities and threats Opportunities It is a new pricing model that no one has ever tried in the The new arrangement of Emilia's space will attract customers from both age groups(indoor central plaza for the young to meet and socialize, and the old will stay upstairs looking for good deals) Threats It is losing both customer groups, the customer traffic was down significantly(dropped by 10%
Name:程家琪 Student No.:17307100075 4 Strengths Augustin has carried out many successful cases in the retail industry. Emilia has a good reputation and a considerable user base as a century-old retailer. Emilia has stores all over Europe (Spain, France, Italy), thus facing with a broader market. Weaknesses The company cannot afford a four-year loss (211 million EURO in the first year). Table 3 Strengths and weaknesses According to Table 3, Emilia’s competitive advantages were its reputation and company scale as an established brand, which Augustin did not make full use of. As a company owning branches in foreign countries and having a long history, Emilia failed to turn them to its advantages but chose to take the same promotion strategy as its small-scale local competitors did, which was not effective enough to differentiate it from others. Emilia’s KSF(Key Success Factors) should be something exclusively owned by it and hard for its competitors to replicate due to their limited resources or influence. (4.1.1 “Annual Promotion” plan) In terms of its weaknesses, although Augustin’s new pricing model might work in the future, the financial burden made it tough for Emilia to survive the four-year experiment period, it was in urgent need of finding a way out. 3.2 Opportunities and threats Opportunities It is a new pricing model that no one has ever tried in the market. The new arrangement of Emilia’s space will attract customers from both age groups (indoor central plaza for the young to meet and socialize, and the old will stay upstairs looking for good deals). Threats It is losing both customer groups, the customer traffic was down significantly (dropped by 10%)
Name:程家琪 Student No: 17307100075 Other companies are making use of this opportunity to ramp up promotions and occupy the market Table 4 Opportunities and threats The opportunities Emilia had were not necessarily decisive to improve emilia current situation. In fact, the models novelty which was considered to be an opportunity turned out to be the reason for failure. Therefore, it is a wise option to abandon the strategy for it has proved to be invalid. Additionally, Emilias new space arrangement has not yet showed its superiority, and the root cause of it is Emilias failure to attract both customer groups. As is mentioned in the second part,proper methods could be applied to seize the opportunity Threats posed by lost customers and aggressive competitors jointly put Emilia in a risky situation, forcing it to implement a marketing strategy reformation. 4. Suggestions for future development Generally speaking, the goal of Emilia could be divided into two parts: retain the existing customers(the middle-aged women) and expand the customer base (attract the young generation to compensate for the possible customer loss due to the pricing model shift). Thus, it could take different approaches contraposing both groups'needs to promote customer-oriented shopping experience and achieve these two goals 4.1 Goal l: retain the existing customers To retain the existing customers, namely the middle-aged women, Emilia should abandon the "everyday low prices"strategy considering the alarming situation of decreasing customer traffic and revenue. But it does not mean that Emilia has to go back to its former policy; instead, it could make full use of its reputation and considerable customer base to execute new plans 4. 1. 1 Annual Promotion plan A new promotion plan called"Annual Promotion" plan is about uniting with other retailers to offer one big promotion a year rather than small promotions every
Name:程家琪 Student No.:17307100075 5 Other companies are making use of this opportunity to ramp up promotions and occupy the market. Table 4 Opportunities and threats The opportunities Emilia had were not necessarily decisive to improve Emilia’s current situation. In fact, the model’s novelty which was considered to be an opportunity turned out to be the reason for failure. Therefore, it is a wise option to abandon the strategy for it has proved to be invalid. Additionally, Emilia’s new space arrangement has not yet showed its superiority, and the root cause of it is Emilia’s failure to attract both customer groups. As is mentioned in the second part, proper methods could be applied to seize the opportunity. Threats posed by lost customers and aggressive competitors jointly put Emilia in a risky situation, forcing it to implement a marketing strategy reformation. 4. Suggestions for future development Generally speaking, the goal of Emilia could be divided into two parts: retain the existing customers (the middle-aged women) and expand the customer base (attract the young generation to compensate for the possible customer loss due to the pricing model shift). Thus, it could take different approaches contraposing both groups’ needs to promote customer-oriented shopping experience and achieve these two goals. 4.1 Goal 1: Retain the existing customers To retain the existing customers, namely the middle-aged women, Emilia should abandon the “everyday low prices” strategy considering the alarming situation of decreasing customer traffic and revenue. But it does not mean that Emilia has to go back to its former policy; instead, it could make full use of its reputation and considerable customer base to execute new plans. 4.1.1 “Annual Promotion” plan A new promotion plan called “Annual Promotion” plan is about uniting with other retailers to offer one big promotion a year rather than small promotions every
Name:程家琪 Student No: 17307100075 weekend would be a feasible approach to chang ing people's shopping habits. As is mentioned in the case, what Emilia should avoid is to"be led around by their misguided desires, and what it should pursue is to"get out in front of customers which is indeed what the new promotion aims to achieve. According to relevant esearches, annual shopping carnival carried out in many countries has turned out to be a huge success. Customers are satisfied by being able to get nearly all product categories at almost the lowest prices throughout the whole year, and it is also beneficial for retailers since cancelling numerous promotions can save them a considerable sum of executing costs 4.1.2 Good Bargains" plan Besides the annual promotion acting as a sales incentive, Emilia also needs to generate sales revenues in daily operations Providing customers with four or five kinds of exclusive items called "Good Bargains" is expected to effectively differentiate Emilia from its competitors. Selling the Good Bargains in bundles at their cost prices as featured products is helpful for customers to enhance the association between the concept cheap with Emilias brand, which also corresponds to Emilias consistent aggressive low price policy. Moreover, applying this strategy will make it more likely for customers to purchase other things incidentally even if hey come specially for the"Good Bargains". Under such circumstances, although gross profit is made by these good bargains, Emilia could still make a considerable economic benefit and develop customers' dependency on it 4.2 Goal 2: Expand the customer base To achieve the goal of expanding its customer base, Emilia needs to further attract the younger generation. As it is mentioned in the case, the young people has become Emilia's next target customer group because of their purchasing power, but the new decoration of Emilia's shops has proved to be a failure so far. So it is necessary to figure out other plans to solve the problem. 4.2. 1 Online to Offline " omnichannel strategy Since the youngsters find online shopping more attractive, Emilia could include online shops in its strategy and change the role of physical shops. In the"Online to 6
Name:程家琪 Student No.:17307100075 6 weekend would be a feasible approach to changing people’s shopping habits. As is mentioned in the case, what Emilia should avoid is to “be led around by their misguided desires”, and what it should pursue is to “get out in front of customers”, which is indeed what the new promotion aims to achieve. According to relevant researches, annual shopping carnival carried out in many countries has turned out to be a huge success. Customers are satisfied by being able to get nearly all product categories at almost the lowest prices throughout the whole year, and it is also beneficial for retailers since cancelling numerous promotions can save them a considerable sum of executing costs. 4.1.2 “Good Bargains” plan Besides the annual promotion acting as a sales incentive, Emilia also needs to generate sales revenues in daily operations. Providing customers with four or five kinds of exclusive items called “Good Bargains” is expected to effectively differentiate Emilia from its competitors. Selling the Good Bargains in bundles at their cost prices as featured products is helpful for customers to enhance the association between the concept “cheap” with Emilia’s brand, which also corresponds to Emilia’s consistent aggressive low price policy. Moreover, applying this strategy will make it more likely for customers to purchase other things incidentally even if they come specially for the “Good Bargains”. Under such circumstances, although no gross profit is made by these good bargains, Emilia could still make a considerable economic benefit and develop customers’ dependency on it. 4.2 Goal 2: Expand the customer base To achieve the goal of expanding its customer base, Emilia needs to further attract the younger generation. As it is mentioned in the case, the young people has become Emilia’s next target customer group because of their purchasing power, but the new decoration of Emilia’s shops has proved to be a failure so far. So it is necessary to figure out other plans to solve the problem. 4.2.1 “Online to Offline” omnichannel strategy Since the youngsters find online shopping more attractive, Emilia could include online shops in its strategy and change the role of physical shops. In the “Online to
Name:程家琪 Student No: 17307100075 Offline"omnichannel strategy, physical shops are more about a place to experience. It includes, but is not limited to what Emilia has done: an indoor central"plaza"for socializing; merchandise appealing to Spain's youth culture, etc. Physical shops and online shops could complement each other in terms of functions, so facilities including well-equipped fitting rooms and properly arranged stands, kind guides and considerate services that are not accessible online should therefore be the key elements of a physical shop. Also Emilia should 100% replicate the in-store experience online, such as displaying the same products and establishing an Internet community, which will not cost much but will be an effective method to ensure the consistency and completeness of its services as well as its continuous impact amor the young 5. Justifications The new promotion solution has already been widely applied in both Chinese and Western countries, and the most well-known examples are Taobao's 11 11 festival and black Friday promotion. As a giant retailer which has branches in many Europea countries and possesses an enormous user base, Emilia has the capacity influence to implement a similar promotion Respondents who participate in Black Friday annually, Participation No participation ever United States United Kingdom Germany Canada (n=509) n=507) 0152017 20152017 20152017 McKinsey& Company
Name:程家琪 Student No.:17307100075 7 Offline” omnichannel strategy, physical shops are more about a place to experience. It includes, but is not limited to what Emilia has done: an indoor central “plaza” for socializing; merchandise appealing to Spain’s youth culture, etc. Physical shops and online shops could complement each other in terms of functions, so facilities including well-equipped fitting rooms and properly arranged stands, kind guides and considerate services that are not accessible online should therefore be the key elements of a physical shop. Also Emilia should 100% replicate the in-store experience online, such as displaying the same products and establishing an Internet community, which will not cost much but will be an effective method to ensure the consistency and completeness of its services as well as its continuous impact among the young. 5. Justifications The new promotion solution has already been widely applied in both Chinese and Western countries, and the most well-known examples are Taobao’s 11.11 festival and Black Friday promotion. As a giant retailer which has branches in many European countries and possesses an enormous user base, Emilia has the capacity influence to implement a similar promotion
Name:程家琪 Student No: 17307100075 Chart I Respondents who participate in Black Friday annually Source: Yagmur Anis, Brian Elliott, and Christian Koestler. "Black Friday 2018: Consumers are eager, more digital, and willing to spend https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/black-friday-2018-consumers-are- eager-more-digital-and-willing-to-spend, accessed November 2018 The latest data shows that the total sales of Taobao's 11 11 festival this year has reached 213.5 billion yuan, nearly 3000 times of that ten years ago. Shops from small ones selling handmade goods to international giant retailers, all had a considerable amount of sales on that day. Likewise, McKinsey's recently released research: "Black Friday 2018: Consumers are eager, more digital, and willing to spend" reported that more than 70 percent of consumers plan to get involved in Black Friday this year. Chart 1 demonstrates that an increasing number of people are interested in this worldwide promotion, so it is predictable that thanks to black Friday. many shops in a dilemma similar to Emilia's are on the threshold of their highest level of sales activities throughout the whole year Figures mentioned above indicate that such promotion is expected to bring huge profit to all the retailers and has become a part of the shopping habits of people Respondents' preferred Black Friday 2018 shopping channels, In sto Mobile web Mobile Tablet web Tablet Smart Other apps browser apps assistants (Alexa, Siri) United States United (n=393) ⊙⊙ Canada 'Respondents selected their top 3 shopping channels accessed November 2018
Name:程家琪 Student No.:17307100075 8 Chart 1 Respondents who participate in Black Friday annually Source: Yagmur Anis, Brian Elliott, and Christian Koestler. “Black Friday 2018: Consumers are eager, more digital, and willing to spend”, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/black-friday-2018-consumers-areeager-more-digital-and-willing-to-spend, accessed November 2018. The latest data shows that the total sales of Taobao’s 11.11 festival this year has reached 213.5 billion yuan1 , nearly 3000 times of that ten years ago. Shops, from small ones selling handmade goods to international giant retailers, all had a considerable amount of sales on that day. Likewise, McKinsey’s recently released research：“Black Friday 2018: Consumers are eager, more digital, and willing to spend”2 reported that more than 70 percent of consumers plan to get involved in Black Friday this year. Chart 1 demonstrates that an increasing number of people are interested in this worldwide promotion, so it is predictable that thanks to Black Friday, many shops in a dilemma similar to Emilia’s are on the threshold of their highest level of sales activities throughout the whole year. Figures mentioned above indicate that such promotion is expected to bring huge profit to all the retailers and has become a part of the shopping habits of people. 1 Li Yong. “见证中国消费力！“双 11”全天成交 2135 亿元人民币，再创新纪录”Global Times, November 02, 2018, http://world.huanqiu.com/exclusive/2018-11/13519926.html, accessed November 2018. 2 Yagmur Anis, Brian Elliott, and Christian Koestler. “Black Friday 2018: Consumers are eager, more digital, and willing to spend”, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/black-friday-2018-consumers-areeager-more-digital-and-willing-to-spend, accessed November 2018
Name:程家琪 Student No: 17307100075 Chart 2 Respondents preferred Black Friday 2018 shopping channels Source: Yagmur Anis, Brian Elliott, and Christian Koestler. Black Friday 2018: Consumers are eager, more digital, and willing to spend https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/black-friday-2018-consumers-are- eager-more-digital-and-willing-to-spend, accessed November 2018 Additionally, Chart 2 shows that an increasing share of people will use mobile devices to research or buy. In an era of Internet, it is becoming increasingly difficult to ignore the prevalence of online shopping today, hence it will be a wise option for Emilia to apply the promotion in both forms to cater to a wider range of customers Besides, the Online to Offline "omnichannel strategy ensures that customers can get their desired products through all channels. It is carried out by most retailers in response to the boom of online market. Macy's, one of the biggest retailer in the orld, has made mobile devices a tool to promote in-store shopping experience and has so far achieved remarkable increase in sales. Since people can experience offline, s Augustine claimed, and place an order online, which saved them the trouble of carrying bags around, they tend to purchase more than they used to be, and user experience is also improved in the meantime Hoguet, the CFO of Macy's, described he achievement of this business magnate as"Every dollars income made online can bring an extra six dollars' income offline in the following ten days. , which is significant to a retailer in urgent need of gross profit enhancement. Similar action was also taken by other companies including Marks&Spencer, John Lewis and bloomdale so Emilia cannot afford to postpone it anymore, the o20 omnichannel strategy will definitely be a huge leap for emilia. Du Hang. " ONLINE TO OFFLINE, Macy's Exclusive Omnichannel O20. Economic Trade Update, 014(07),78-81
Name:程家琪 Student No.:17307100075 9 Chart 2 Respondents’ preferred Black Friday 2018 shopping channels Source: Yagmur Anis, Brian Elliott, and Christian Koestler. “Black Friday 2018: Consumers are eager, more digital, and willing to spend”, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/black-friday-2018-consumers-areeager-more-digital-and-willing-to-spend, accessed November 2018. Additionally, Chart 2 shows that an increasing share of people will use mobile devices to research or buy. In an era of Internet, it is becoming increasingly difficult to ignore the prevalence of online shopping today, hence it will be a wise option for Emilia to apply the promotion in both forms to cater to a wider range of customers. Besides, the “ Online to Offline” omnichannel strategy ensures that customers can get their desired products through all channels. It is carried out by most retailers in response to the boom of online market. Macy’s, one of the biggest retailer in the world, has made mobile devices a tool to promote in-store shopping experience and has so far achieved remarkable increase in sales. Since people can experience offline, as Augustine claimed, and place an order online, which saved them the trouble of carrying bags around, they tend to purchase more than they used to be, and user experience is also improved in the meantime. Hoguet, the CFO of Macy’s, described the achievement of this business magnate as “Every dollar’s income made online can bring an extra six dollars’ income offline in the following ten days.” 3 , which is significant to a retailer in urgent need of gross profit enhancement. Similar action was also taken by other companies including Mark’s&Spencer, John Lewis and Bloomdale, so Emilia cannot afford to postpone it anymore, the O2O omnichannel strategy will definitely be a huge leap for Emilia. 3 Du Hang. “ONLINE TO OFFLINE, Macy’s Exclusive Omnichannel O2O”. Economic & Trade Update, 2014(07), 78-81