Page 280 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 14: A Review of Retailing: Environment and Operations

D. Threat from new entrants Notes
 Threat from new entrants is high in segment 1 and low in segment 2 and 3.
Brand name and high capital requirements build up high entry barriers in segment
1, which can efficiently protect existing firms from intense competition.
 To provide high quality and the latest fashion for segment 1, capital is required for
using superior materials, modern design, superior workmanship and sufficient
expertise. Brand name is also an important competitive advantage for established
firms due to the brand loyalty of people in this segment.

 Meanwhile, low cost and low brand loyalty, resulting in low entry barriers in
segment 2 and 3, provide more chances for potential entrants.
E. Rivalry among existing firms

 It seemed that existing firms in the clothing industry do not compete as intensely as
firms in other industries. In relation to segment 1 and 2, M&S suffers more from the
competition of segment 3.
 Competition in segment 3 comes from two aspects. Price-sensitivity feature of
segment 3 is very likely to lead to a price battle which will finally squeeze out
profits. A number of firms competing in segment 3 will erode M&S market share.
Further problem areas which need to be considered are in particular:
A. Market

 M&S is tied to a generalized view of the market due to a lack of proper segmentation.
It might not need segmentation in early year since people had similar requirements
and very few competitors could challenge its market leadership. However things
have changed. Strong competitors emerged and different products have been required
by customers. M&S failure to segment the market and to differentiate products
resulted in shifting customers’ interests to other brands. Consequently M&S market
share has been eroded.
 M&S must target a segment or prioritize some segments. Different marketing
strategies should be raised for each different segment so as to shield itself from
competition.
B. Customers
 Demand and Competition are the determinants of industry profit. Therefore,
understanding, stimulating or even creating demand is of great importance for
profitability.

 Understanding customer preferences and trends was deemed as a major reason of
previous success. However, survey results of customer satisfaction in the late 1990s
revealed that customers were more and more dissatisfied with product or service.
This resulted from the fact, as frequently reported, that M&S no longer understood
or reacted to its customer’s needs.
 Technology develops and people care more and more about clothing fashion rather
than only quality or price, the life cycle of the products in this industry tends to be
short. That means, if the company does not pay sufficient attention to collect
information from customers, products might be outdated soon. This would then
require a swift managing change including new designs, new concepts and new
materials to meet customer’s needs.

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