Market Environment for H&M
Market size, market share, and target markets
The H&M Company is the third-largest fashion house in the world after Zara and Gap Inc. The company has a market value of more than $45 billion. The company has more than 2000 stores across the globe and is currently a market leader in the fast fashion segment of the market (H&M Company 2015). The company targets customers of all ages who are interested in fashion apparel. The company specializes in cheap chic and fast fashion products for women, men, and children.
Micro and macro environments
Porter’s 5 forces analysis was carried out to establish the external environment of the H&M Company as discussed below.
The threat of new entrant
It is a tall order for a new entrant to penetrate the fashion industry and replace the current players such as H&M and Gap Inc., due to their dominance and large capital base (Elder & Krishna 2012).
Threat of substitutes
The threat of perfect substitutes is very low since the H&M Company and its current competitors offer customized products, which cannot be copied easily (Cone 2011). For instance, the cheap-chic and fast-fashion are products unique to the H&M Company. However, the company is currently facing the challenge of imitations, especially in the Asian and African markets.
Supplier’s bargaining power
The suppliers’ influence is very high in the fashion industry where H&M operates. There are many local and international suppliers that have been contracted by H&M to supply different fashion products. However, H&M has cleverly maneuvered around the high supplier power through signing binding contracts with manufacturers to reduce the impact of the middlemen in the fragile industry (H&M Company 2015).
Buyer’s bargaining power
There are several fragmented segments that are operated within the H&M Company. This means that potential buyers of H&M products have high power to influence how prices are set by the company due to high competition from companies such as Zara and Gap (H&M Company 2015). Fortunately, H&M has some of the most competitive prices within the industry.
Several fashion retail outfits operate within the global fashion industry. For instance, Gap is the market leader followed by Zara and then the H&M Company. In planning for market expansion, the H&M Company has to be very careful not to make a move that might reduce its competitive advantage (Sethna, Harrigan, & Jones 2013). For instance, the H&M Company has created flexible brand names such as cheap chic and fast fashion (H&M Company 2015). Besides, the company has capitalized on quality and customized service delivery to survive the competitive forces in the global market.
Internal environment analysis
In order to establish the internal environment of the H&M Company, SWOT analysis was carried out and the findings are discussed below.
The company has an extensive network of more than 2,000 stores spread across the globe for easy access to the market. This has improved the accessibility and visibility of different products retailed by the H&M Company. The company’s products are also differentiated and segmented to appeal to different customer segments. In addition, the company has a strong brand name beside a strong customer relationship management strategy (H&M Company 2015).
The company has an active presence in Europe more than in other markets. Unlike its major competitors such as Zara and Gap, the company’s stores are not evenly distributed. This denies the H&M Company the opportunity to enjoy uniform product demand across the globe. Besides, the company has struggled with high inventory costs and has downsized some of the outlets (H&M Company 2015). These weaknesses have slowed down the company’s market expansion.
The company has the opportunity for further expansion due to a strong market presence and global brand image. For instance, the company may embrace modern technology in sales and marketing to boost its revenues. In addition, the company has an opportunity for penetrating new markets through a partnership with subsidiary fashion companies to penetrate the virgin markets in Asia and Africa (H&M Company 2015).
The primary threat facing the H&M Company is competition from other global brands such as Gap and Zara. Besides, the company is threatened by counterfeiting enterprises that might produce substandard grounds and market them under the H&M brand. In addition, the high supplier power and even increasing cost of raw materials from independent manufacturers might force the company to increase its prices in the future (H&M Company 2015). This strategy might be counterproductive in a market where there are many substitute products (Sethna, Harrigan, & Jones 2013).
From the internal and external environment analysis, it is apparent that the H&M Company has the potential for further penetration in the underdeveloped markets in Asia and Africa. The H&M brand has been positioned to customers as affordable and high-quality fashion apparel for everyone.
H&M Marketing Mix
Product development; lifecycle, branding, packaging, and anatomy
The H&M products are in the maturity stage, which is characterized by an established presence in the market and a strong brand name. The only changes the company can currently make on the products are modifications to the manufacturing process as a strategy for competitive advantage.
The products of the H&M are presented in the market as multiple brands consisting of cheap chic and fast fashion. These brands operate independently to appeal to different customer segments (Sethna, Harrigan, & Jones 2013). The multiple branding strategies were adopted by the company to create an environment of own competition by appealing to different customers looking for diverse fashion apparel (Cone 2011).
H&M fashion apparel is packaged in attractive colors for women and children products. The colors range from red, pink, violet, and purple. The products are packed in attractive boxes and the company provides biodegradable high-end bags to customers who buy products from its stores.
The products are divided into high-end and low-end apparel to appeal to low-income and high-income customer segments (Sethna, Harrigan, & Jones 2013). Besides, the products are further divided by their use such as children apparel, women apparel, and men apparel. In addition, the H&M products are segmented into accessories, clothing, and bags, and formal wear (H&M Company 2015).
Pricing strategy; competitors pricing and breakeven analysis
The H&M Company has perfected the multiple-pricing strategy to counter the cost-leader pricing adopted by Gap Inc., and Zara companies. The multiple-pricing strategy at the company is aimed at luring potential customers to make multiple purchases with the promise of discounts for a certain amount of sale (H&M Company 2015).
This strategy has been successful in countering the loss-leader pricing adopted by the company’s arch-rivals since the discounts have succeeded in attracting more customers into the stores (Elder & Krishna 2012). The company has been making profits for the last two decades and the future projections indicate a higher profit margin. In the 2014 financial year, the company made a profit of more than $4 billion. This indicated a rise in profitability by 10% from the previous year (H&M Company 2015).
Distribution; channels and online distribution
The company has a complex distribution network consisting of local and international suppliers, independent manufacturers, and a successful in-house distribution chain (Sethna, Harrigan, & Jones 2013). The company has successfully implemented vertical integration and online portal to facilitate the movement of products from the production stores to the retail outlets. The distribution channels run independently in different locations where the H&M Company has stores. The online portal has improved sales at the company by more than 15% in the last five years.
Communication; advertising, sales promotion, PR, and publicity
The company has a complex and well-organized product promotion strategy for its different brands. The advertisements are done through local media channels, social media, print media, and company websites (Sethna, Harrigan, & Jones 2013). The sales promotions include discounts vouchers, loyalty points, and free delivery for large volume buyers.
The company has a very flexible return-and-replace policy for customers as long as the product purchased has not been used. The company has a strategic customer relationship management department that offers 24/7 customer care services (Sethna, Harrigan, & Jones 2013). The department also acts as the central public relations section of the company. In the last two decades of operations, H&M has remained among the few companies with a positive public image across the globe.
Analysis and Recommendations
Steps management should adopt to increase benefits and reduce prices
In order to increase benefits and reduce prices that its customers encounter when shopping for H&M products, the managers should adopt the following steps;
Operational efficiency: Through improving operational efficiency, the company will reduce the inventory cost and improve output at the least possible cost. The improvement in efficiency will translate into the creation of margin for reducing the prices of products at the H&M stores (Elder & Krishna 2012).
Modification of the current vertical integration strategy: The management should ponder modifying the current vertical integration strategy at the company through forging a partnership with medium and smaller companies to retail its products (Sethna, Harrigan, & Jones 2013). This strategy is meant to streamline the supply chain and reduce the inefficiencies such as fluctuation of foreign currencies, which affect the final price of different products (Cone 2011). Through this strategy, the company will be in a position to offer its products at more affordable prices across the globe.
Innovation in pricing: The H&M Company might consider adopting the cost leadership strategy currently perfected by the Zara Company in order to ensure that the output of the company is streamlined to cost-effectiveness in production (Sethna, Harrigan, & Jones 2013). This can be achieved by creating strings of products that have different price tags for different classes of customers (Birdsall & Johnston 2010). As a result, the company will be able to offer prices that are appealing to customers across all classes.
How H&M can increase the value of its offering to customers
The H&M Company may further increase the value of its offering to customers through the introduction of after-sales services such as loyalty cards and frequent discounts. This strategy will create a loyal following among customers who will feel that the company cares about their pockets (Cone 2011). Through well structured after-sales services, the company will be in a position to increase sales as a result of increased customer visits to its stores.
How H&M strikes a balance between standardization and adaptation of marketing program
In order to strike a balance between standardization and adaptation of its marketing program, the management should consider customization of the products to fit each market to ensure that the targeted customers embrace the products. For instance, in the Chinese market, the company should consider customization of the H&M products to appeal to the conservative Chinese culture. This should be accompanied by localized marketing programs in local Chinese language to increase brand acceptance each this market (Kotler & Keller 2012). As a result, the company will be in a position to penetrate each market without any cultural and communication barrier since each marketing program will be localized to fit in the targeted market.
A marketing program that can make H&M succeed in the markets
In terms of elements of the marketing program, the H&M management should invest in remodeling the current marketing communication strategies that are aligned to each customer segment in each region. This can be achieved when the element of culture, as determining product acceptance, is integrated into the current marketing programs. The programs should, however, be customized and completely localized for optimal success and product market sustainability (Sethna, Harrigan, & Jones 2013). Through the approach, the current challenges that the H&M Company is facing in foreign markets such as China, Africa, and some parts of Asia will become history.
Birdsall, C & Johnston, N 2010, “Achieving brand-driven business success,” Design Management Review, vol. 19 no. 2, pp. 67-74.
Cone, S 2011, Steal these ideas: Marketing secrets that will make you a star, John Wiley & Sons, New York.
Elder, R & Krishna, A 2012, “The visual depiction effect in advertising: Facilitating embodied mental simulation through product orientation”, Journal of Consumer Research, vol. 38, no. 6, pp. 988-1003.
H&M Company 2015, About us.
Kotler, P & Keller, K 2012, Marketing management, Pearson Prentice Hall, New Jersey.
Sethna, Z, Harrigan, P & Jones, R 2013, Entrepreneurial marketing: A global perspective, Emerald Group Publishing, New York.