(Objective)
1. Problem In late 1982, Luciano Benetton was deciding how the Benetton Group should best carry out its plans to enter the US and Japanese markets for casual-wear garments, how they can be able to penetrate with a new business reality which is extra-European in scope. Entering a foreign market is a risky challenge for business aiming to achieve successful international operations like in Benetton Group. But t hen they have to take into account the diverse requirements of the markets they are planning to enter. The company would need to compete with domestic and international department stores, independent and specialized retailers as well as mail-order companies targeting more or less similar consumer group. And by entering U.S. market, how would they be able to support it operationally? Several e lements of the U.S. market were particularly worrisome. First, its sheer size could make it difficult for Benetton to accommodate the volume of potential sales it might enjoy. Second, the Benetton name and its associated labels were unknown except among those who had traveled in Europe. In addition, several large retail chains carried a great deal of merchandise aimed at Benetton’s prime markets. And several
had used extensive media advertising to solidify their position. Other problems they might face in the process of developing an appropriate retailing strategy for t he United States is that should Benetton be able to develop markets as it had in Europe, relying on agents to build and control a retailing network? Twenty regions for U.S development had been identified on the basis of population and per capita clothing purchase data. Should Benetton rely on existing or new agents? Nearly all of its agents were from Europe or the Middle East. These agents knew the company and its policies and were trusted by Benetton’s management. On the other hand, many of the existing agents did not know t he U.S. market
well, and several already had heavy workloads. 2. Objectives Their objective is to enter the US and Japanese markets for casual-wear garments and support its operations successfully by considering the following different plans, this are by developing a new plant in the United States with dyeing facilities and warehouse, or opening only a new warehouse to stock finished product shipped from Ponzano factory, or by directly distributing conventional forms of communication or extended computer linked up with product shipment by air. But then any of this would require higher cost of capital that’s why Benetton Gr oup must continue the diversification of the
business area. The Group maintains a strategic focus on production and organizational efficiency policies related t o the process of production decentralization, completion of production cycles, and organizational cost reduction. Focusing on this would lead them in controlling the conflicts that might arise in different areas of the organization.
The Benetton represent a new era in the point-of-sale development, instead of small structures they would have larger retail areas in which they would have larger more diverse merchandise. Because of the American’s preference for easy-to-care-for garments the company must adaptable and ready to
respond to the demands of the market. Benetton’s business is sensitive to changes in customer spending habits and can be influenced, amongst other things, by business outlook, interest rates, taxation, local economic conditions, uncertainty over future economic prospects and a shift of spending habits towards other goods or services. Consumer preferences and economic conditions may change from time to time in each and every market in which the Group operates. And so, they should be able to cope and manage these changes.
3. SWOT Analysis Strengths „ Worldwide brand recognition
-Benetton had become the world leader in the field of knitwear. By specializing in the production and retailing of casual-wear clothing items, particularly woolen sweaters, cotton T-shirts and jeans, Benetton had, by 1982, become the world leader in in the field of knitwear. In that year, it sold 26.9 million units of clothing, of which nearly half were for export from Italy. „ Successful business model
-Marketing strategies had been based on the development of fashionable but casual knitted garments featuring bright colors. The price quality combination, high-fashion content, and array of bright colors were at the core of the company’s retailing strategy. And their values which comprises the understanding of Benetton’s way of doing business. The ideal Benetton retailer was young and showed potential for “growing with Benetton.” „ Successful track record of recent collections For women’s garments, for example, a prototype and sample collection was prepared. A Benetton, this was generally done four t imes per year under Giuliana Benetton’s direction—twice for the major spring/summer and fall/winter collections and twice for “integrative” collections for Christmas and for sports. A major collection usually contained 450 items, and the “integrative”
collection following it featured perhaps 50 fashion-oriented items. The same line was created for all countries. About half of the items contained in two main collections represented about 90% of sales. Weaknesses „ Brand appeal has declined
It was apparent to Benetton’s management that its current product lines were reaching the
saturation point in the Italian market. As a result of this, as well as increasing competition, a growing amount of imported merchandise, and a stagnant economy, Benetton’s billing in Italy had leveled out in
real terms. „ No control of commercial partners
Because many of the contractors were owned in whole or in part by the managers of Benetton controls regarding in assurance is at risk. „ Longer time-to-market vs. pure retailers
Benetton did not manufacture anything without an order in hand.
Opportunities „ Expansion in emerging markets
-Benetton could potentially capitalize on the strong image of Italian design and the growing popularity of Italian fashion in the United State. And its nontraditional approach to retailing might enable to find good store locations that competitor could not utilize. „ Strong operating leverage
-Construction of more factories that could supply Benetton’s need and designing new improvements in the logistics system. An elaborate new information network, relying on automatic cash registers in clusters of 10 shops. It would be capable of instantly recording individual sales in Benetton’s European shops. „ Benefits from USD weakness
-Company could gain maximum penetration by maintaining its European price points, adjusted only for U.S. import tariffs of 35% of manufactured cost. Threats „ Expensive real estate acquisitions in retail The Group’s growth and expansion strategy has led to an increase in fixed and operating costs To strengthen Benetton’s image and market share, investments have been made in recent year s to sell
products through directly-owned retail stores, even if the Group has traditionally distributed its products through a capillary network of franchise stores. To date, the Benetton Group manages 280 wholly-owned shops, which are strategic as far as the demographic and commercial profile of their locations is concerned. These retail stores have, however, led to an increase in fixed and operating costs.
These investments expose the Group to the additional risk that some of the chosen locations may turn out to be inadequate because of changes in the area’s demogr aphic profile or the location of shopping districts. „ Changing trends in the market Benetton’s success depends on its ability to anticipate and respond to changing trends.
Sales and profitability levels also depend on the ability to anticipate and re act immediately to changes in fashion trends and consumer tastes. If Benetton’s collections were not to meet with the customers’
approval, the result would be lower than expected sales, a higher level of discounts, and reduced margins. „ The Benetton business is subject to competitive pressure.
The Group operates in an industry, the apparel sector, which is highly competitive as far as production, sales and distribution are concerned. The number of competitors has grown considerably in the last few years, and companies manufacturing out of countries with a low cost base now play an important role. Marketing Audit/Gap Analysis Internal Audit -Benetton relied on internally and externally decentralized operations. Its internal decentralization involved nine Benetton facilities: seven in Italy, one in France, and one in Scotland. Operations performed at seven Italian locations, each factory differed in size and functions performed. Functions performed and products made at Benetton’s foreign factories differed as well. Typically, the more complex garments were produced internally in Benetton’s factories. The contracting network on which Benetton relied represented a kind of “parallel empire” to the company itself. Many of the contractors
were owned in whole or in part by managers of Benetton. Other functions were centralized at the company’s headquarters. Technical research, planning and all the purchasing were carried out at
Ponzano Veneto. Giuliana Benetton supervised product planning and design as well as the acquisition and exploitation of necessary patents and rights. External Audit - Benetton focuses mainly on quality, breadth of product range and merchandising, customer service, store ambience, and sales and marketing programs. The Group also competes to secure prime retail sites and the best lease and purchase conditions. Benetton’s marketing strategy had been based on the development of fashionable but casual knitted garments featuring bright colors. They relied on location and bright inviting store appearance for its promotional effort. The company’s television spots emphasized the “sport” and “young” image of the Benett on name. Magazine advertising was used for
institutional campaigns and emphasized color and the Benetton “life -style”. Company is being adaptable and ready to respond to the demand of the market.
Competitive Audit -Benetton had experienced increasing competition in Italy and Europe, primarily from firms emulating its strategy. For example, other Italian manufacturers had instituted programs of direct selling by franchising local retailers, but had to gradually abandon their wholesale customers and launch new trademarks. One of these is Magnificio Torinese, they’ve been oper ating shops f or exclusive sale of
casual sportswear, having 100 outlets in Italy and planning to extend its sales network to other countries that apparently threatens Benetton’s market share. As a result, the Benetton and their senior managers
were studying alternatives for developing the U.S market, where they felt they might open 1,000 or more retail outlets. Benetton competes with high quality products and price considerably lower than those of competitors. They’ve been investing much for their promotional campaign r eflecting the Benetton’s interest. In the U.S there was already formidable competition, primarily from well-
established manufacturers and retailers of casual wear, these are Levi Strauss with sales of about $2.3 billion, not only manufacturing jeans and related items, but also operated retail stores, budgeting more than $100 million each year for advertising and promotion. There are also several large retail c hains carried a great deal of merchandise aimed at Benetton‘s prime markets, including The Limited,
Charming Shops, and Miller-Wohl. But then none of these competitors manufactured garments, so Benetton could potentially capitalize on the strong image o f Italian design and growing popularity of Italian fashion in the United States. And its nontraditional approach to retailing might enable it t o find good store locations that competitors could not utilize.
Gap Analysis Benetton is one step closer to achieve their objectives. By means of effective strategic planning and as well as understanding foreign consumers and cultures, Benetton we re able to gain foreign market entry and have effectively distributed its product to local and foreign consumers alike. Benetton could be able to gain competitive advantage in entering U.S market because none of their competitors manufactured garments. And by focusing on their internal and external oper ation Benetton would be able to control risk factor that might affect their company. The company’s growth and expansion is almost there just continue its diversification and investments in other areas of business.
Subjective Franchising By this Benetton would be able to introduce its product to the U.S market. It would become a source of business growth, economic development, and job opportunities. In order to make t his strategy work, the business operator must be able to identify specific emerging markets where they can operate successfully. This would involve the establishment of new business partnerships as well as the development of relevant commercial activities. This method would allow them to achieve its aim of
expanding internationally, and would help them to strengthen the commercial strat egies of the company. It would also allow the company to harness its business energies as well as take advantage of both local expertise and knowledge. Benetton is also able to obtain useful business information, particularly on which foreign markets would respond well to the company’s product lines and services.
This foreign market strategy then helps Benetton to become more responsive to its international customers, resulting to greater customer satisfaction and profitability.
Outsourcing In order to support its global goals, the company must enhance its production systems. The company must apply the outsourcing production method. Outsourcing is the allotment of work to supplier and distributors to provide needed services and materials to perform those processes that the organizations do not perform themselves. The aim of such technique is to make use of foreign suppliers as well as product developers in producing its products to be distributed t o foreign markets or to it local consumers in Italy. Benetton have been doing this having subcontractors to provide materials they need, so might as well apply this method as they entered U.S market. It would benefit the company, particularly in terms of sales, production cost, and market growth. Outsourcing a production activity of a company can lead to faster and better production outcomes and lower production cost. Benetton can choose to employ the help of foreign laborers who can be paid at lower rates. Outsourcing strategy is not only applied to its production method but to product distribution as well. This is done by contracting large foreign retailers to distribute its products to foreign consumers. This then helps in improving sales, market growth and customer satisfaction.
Diversification Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Benetton used related diversification. It houses a variety of products that complement each other and are all related to fashion and lifestyle. Benetton diversified their products such as their clothing line; t hey came up with new brand names that better stood for the new kinds of products being offered. By coming up with new brand names for its new products, Benetton was able to keep the strength of the brand and made sure that the image and ideas could associate with Benetton. In the end, the true measure of a brand's success if it is able to clearly communicate what it stands for to its consumers and allow them to develop loyalty to the brand. Thus by continuous diversification, and considering joint ventures, Benetton would be able to enter foreign markets.
Strategy Choice
