Marks and Spencer’s Corporate Objectives
Marks and Spencer’s corporate objectives are incorporated in its mission statement. This outlines what the business is and what it should be. Mission statements set out in writing what the firm wants to achieve and often include information on the values of the business. M&S outlines its core business as clothing and Food. Its financial objectives is to deliver shareholder value in terms of increase returns, but also in terms of increase sales and market share in retailing. It beliefs and values are outlined as “Our customers continue to see Marks & Spencer as the place to shop for special food, produced to exacting standards”. M&S also sees its workforce as an important part of its plan and also considers modernising its stores as a key corporate objective.
Vision: The standard against which all others are measured
Mission: Making aspirational quality accessible to all
Values: Quality, value, service, innovation and trust
M&S also outlines its corporate social responsibility in its mission statement and considers the needs of other stakeholders too.
“We have a strong tradition of corporate social responsibility (CSR) but we want to make sure CSR is integrated into our operations at every level...”
Finally, M&S also outlines its strategic intent (vision) in its corporate objectives. M&S wants to continue its differentiation strategy by delivering freshness, quality and innovation.
Internal and Corporate Appraisal
An Internal and corporate analysis in terms of strength, weaknesses, opportunities and threats (SWOT) will assist in gaining an understanding of where Marks & Spencer’s is currently in terms of strengths and where improvement is required within the business and what outside environmental threats it may face as well as what new opportunities are available to the company in the short and medium term.
Figure1: M&S SWOT Analysis
INTERNAL STRENGTHS
· Diverse ranges of Products - Food, Clothing, Financial products, furniture, wine and Home
· Largest retailer in the United Kingdom by sales.
· Strong Cash Flow Position
· Increase turnover and trading profits
· Strong Balance Sheet
· Leading Premium Quality Food Retailer
· Brand Awareness
· Human resources
· Capabilities to turn resources into advantages OPPORTUNITIES
· New Products
· Market shift to globalisation
· Innovation & Alliances
· Customers demand change to more value for money products
· Diversification
· Develop overseas supply chain
EXTERNAL WEAKNESSES
· Perception of High Prices
· Customer disinterest
· Environmental issues: Pollutions
· Buyer sophistication and knowledge
· Substitute products or technologies THREATS
· New & existing competition
· Volatility in Price of raw products
· New legislations
· September 11th
· Economic recession
· Market shift to globalisation
· Takeover bids
· Low cost retailers
· Extremely high competition for customers and resources
M&S Financial Highlights
Underlying Group profit before tax* up 6.0% to £805m
Adjusted earning per share* up 6.0% to 24.7 pence per share
Dividend per share of 11.5p, up 9.5%
Group operating cash flow of £1,066.5m, before pension contribution of £400m (http://www2.marksandspencer.com/thecompany/)
M&S 2004 Financial performance show good progress in terms of companies financial recovery, however, the Chairman in his message has expressed concerns regarding sales progress. This is in line with M&S’s current generic strategy of differentiation. The question which marks and Spencer’s needs to address is should the company adopt a cost leadership strategy and compete with low cost retailers like ASDA on price competition is pursued of increase sales?
The Five Forces Model
Figure 2: Five Forces Model - ACCA Paper 3.5 (2001)
Threats from
Potential entrants
Suppliers
Bargaining power Competitive
Rivalry Buyers
Bargaining power
Threats from
Substitutes
Porter explains that there are five forces inherent in a market, which will jointly determine the intensity of competition and profitability of M&S and the food retailing industry. The first is the threat posed by new entrants, the high capital expenditure and confidence of customers represent significant barriers to entry and the market is also sensitive to reputation. However, the emergent of low cost manufactures do pose a significant threat (as illustrated by figure 2). There is an opportunity in the low price/ low economy (fast) sector. Maybe BHS and Top Shop or ASDA and Morrison could consider introducing low cost home products. The second is the threats from substitutes, as there are many retailers of other premium branded food, hence, Sainsbury, John Lewis, and Rackhams etc. The third force is the threats from the bargaining power of buyers, this is strong for both M&S and the entire food retailing industry with a large number of alternative suppliers, hence, the aggressive pricing strategy. This results in a very strong competitive rivalry in the industry. This is intensified as a result of little or no differentiation in the basic product offered. Finally the threats from the suppliers bargaining power, this is fairly low in the food industry, due to dual sourcing strategies, using a range of alternative sources of supply for products.
External Environment – PESTLE Analysis
All of those (political, economic, social, technical, legal and environmental) factors will to some extent apply to the retail industry in Sweden.
POLITICAL – Following the European Integration and Free Trade Agreements, the market has opened up for British Companies to invest in Eastern Europe. Tesco already has 60 Hypermarket store in Hungary. Lidl is uncompromisingly fighting to maintain its market share with an aggressive pricing strategy.
ECONOMIC - the Retail sector is fairly recession prawn and also very sensitive to changes in interest rates. Since the events of September 11th the world economies have suffered heavily, stocks plummeted and prices are at all time lows. The world economy is however, now on the up post September 11th. Consumers are optimistic and the retail industry is once again booming.
SOCIAL – changes in consumer taste and lifestyle represent both opportunities and threats for the industry. Opportunities in terms of new market and consumers, however, there are added threats in terms of social acceptance to alcohol
TECHNICAL – Changes in retailing methods as such clothes sales via the Internet is now a common place in retailing. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business.
LEGAL – National legislation for health and safety both in terms of consumer rights and also in terms of production of own natural renewable resources for making clothes.
ENVIRONMENTAL – The renewable source of resources used in production, namely cotton and wool are environmentally friendly. The threats are in terms of legal consequences for livestock’s in terms of health and safety.
Market Entry Strategy
We can use Ansoff’s product/market matrix to identify directions for Marks and Spencer’s strategic development. This matrix offers directions for strategic option available to M&S in terms of products and market coverage, taking into account its strategic capability and also expectation of stakeholders
Products
Existing New
Markets Existing Protect/build
· Consolidation
· Market penetration Product development
· With existing capabilities
· With new capabilities
· Boyond current expectations
New Market development
· New segments
· New territories
· New users
· With new capabilities
· Beyond current expectations Diversification
· With existing capabilities
· With new capabilities
· Boyond current expectations
Source: Johnson, G., Scholes, K., Whittington, R., (2005)
We can see from the Ansoff Matrix that Marks and Spencer’s lunch of Financial services products will have involved a diversification strategy. As M&S did not already sells financial products, so new market and new product. Both capability and market consideration has driven M&S to into development into new markets and products.
M&S Generic strategies
There are three main generic strategies available to all companies including M&S, either become the lowest-cost retailer or differentiate products and services in such away that its valued by customers to the extent that they will pay a premium price. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. The case of M&S’s core products (food and clothing), it implements a focus generic strategy as it concentrates on a narrow segment (a particular buyer group (executives), market segment (high-end), product feature (freshness) and within that chosen segment M&S attempts to achieve differentiation from Tesco’s Asda, BHS, Top Shop etc. The premise is that the needs of the group can be better serviced by focusing entirely on it.
Competitive
Scope Competitive advantage
Lower cost Differentiation
Broad target (industry wide) Cost leadership Differentiation
Narrow target (market segment) Cost focus Differentiation focus
Marketing Mix
The marketing mix includes all the elements associated with the product(s) that affect whether the consumer decides to buy or not. There are clearly many factors which influence a consumer’s decision to buy something and these are all part of the marketing mix (the 4 Ps.)
PRICE – M&S charges premium prices through its differentiation strategy.
PRODUCT – M&S markets its products based on superior quality and reliability.
PLACE – M&S products are sold through its large number of stores in city and town centres. More recently M&S has expanded its sales distribution channels through the Internet via its website (online shopping)
PROMOTION – M&S integrated marketing communication is delivered through media in various forms, advertising, TV, national newspapers and magazines as well as through the web site.
Market Segmentation
Market segmentation allows M&S to treat similar customers in similar ways, whilst distinguishing between dissimilar customer groups. M&S uses demographic segmentation to select its target markets for its products (focus strategy). M&S targets its customers by age, income, social class, and occupation. M&S targets the 30 plus age group with high income and executive occupation. M&S also bases its market segmentation through value. Many products in M&S’s clothing range have a premium-priced, high quality segment (M&S, Clarks, Faith, Office), a mid-priced segment (Top shop, River Island) and a low-price segment (Barratts) e.g. shoes. In such a market, fashion and quality differences can outweigh price variations.
GE/McKinsey Matrix
Business Unit Strength
High Medium Low
Industry Attractiveness High Financial Services Clothing
Medium Food
Low
The GE matrix can be used to screen M&S’s portfolio of strategic business units (SBU). This matrix is similar to the BCG grid in that it’s useful for showing a portfolio of products/services. The industry attractiveness is determined by market growth rate, market size, industry rivalry and macroeconomic factors as analysis earlier in the PEST. Business unit strength is analysed via market share, brand equity and profit margin. The above GE matrix shows three M&S SBU and where they would be plotted on the matrix. Financial services/products has a high market growth and high industry rivalry, but M&S’s strength in terms of market share and profit margin would be at best medium/low. Clothing has high industry attractiveness but M&S’s market share (11% share of the UK market) and profit margin relative to competitors is low (hence, disappointing sales – 0.5 percentage decrease in turnover). Food has medium industry attractiveness with M&S’s market share being only 3.2 %; growth in market share, brand equity, and distribution channel access can all be classified as medium/low, however, brand equity is high (leading provider of high quality food).
Risk assessment & contingency plan
M&S must plan for risks around its strategic choices, there are risks in terms of focus strategies in that imitation and changes in the target segments. Furthermore, it may be easy for a broad-market cost leader to adopt its products in order to compete directly, hence, ASDA, Tesco all of which have the same portfolio of products/services as M&S. M&S must have a contingency plan in terms of cost leadership and not just focus differentiation, to counter the growing rivalry from other supermarket chains.
Conclusion
Using both environmental analysis techniques (SWOT and PEST) and portfolio analysis we have seen that M&S have various internal strengths and weakness in its current business activities as well as number of opportunities and threats. The portfolio of M&S’s products in terms of BCG matrix is either ‘dogs’ (cash in balance) or question marks (cash user). In food and clothing (with its focus differentiation generic strategy) relative market shares is low with low industry growth and Financial services industry growth is high but M&S’s market share is low and will require substantial capital investment to turn them into ‘stars’.
References and bibliography
1. Johnson, G., Scholes, K., Whittington, R., (2005) Exploring Corporate Strategy Text and Cases, 7th Edition, FT Prentice Hall
2. Johnson G and Scholes K (1993). Exploring Corporate Strategy - Text and Cases. Cambridge: Prentice Hall.
3. ACCA Paper 3.5 Strategic Business Planning and Development (2001) The Financial Training Company
4. http://www2.marksandspencer.com/thecompany/
