CASE – 1
E-BAY
The concept for eBay was born during a conversation between Pierre Omidyar and his wife, an avid Pez collector. (She currently has a collection of more than 400 dispenses.) She commented to Pierre how great it would be if she were able to collect Pez dispensers and interact with other collectors over the Internet. As an early Internet enthusiast, Pierre felt that many People like his wife needed a place to buy and sell unique items and meet other users with similar interests. He started eBay in 1995 to fulfill this need.
Luckily for Pierre Omidyar, he was living in Silicon Valley when he got the idea for eBay. If Omidyar’s family had been living in France, his idea never would have gotten off the ground. It’s not a lack of venture capital or Internet audience in France that would have stopped him; it was the law at that time. Under French regulations, only a few certified auctioneers are allowed to operate, so eBay could not have been opened for business in its founder’s homeland back in 1995. Ten years later, eBay operated auctions in Argentina, Australia, Austria. Belgium, Brazil, Canada, China, France, Germany, Hong Kong. India, Ireland, Italy, Korea, Malaysia. Mexico, Netherlands, New Zealand, Philippines, Poland, Singapore, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom.
OFFERING TO CUSTOMERS
Most retailers follow the business-to-consumer sales model. eBay pioneered online person-to-person trading, also own as the consumer-to-consumer sales model, by developing a Web-based community in which buyers and sellers are brought together. Initially, most of the items auctioned were collectibles such as antiques, coins, stamps, and memorabilia.
Many of the sellers on EBay are small entrepreneurial Business that use the site as sales channel. By 2003, most of the merchandise available on eBay had shifted form collectibles to practical item, such as power drills and computers. Now big business such as Disney and Sun Microsystems have discovered Bay. Retailers, manufacturers and liquidators are using the site to unload returned merchandise, refurbished merchandise, and used products.
The eBay service permit sellers to list items for sale and enables buyers to bid on items of interest. All eBay users can arowse through listed items in a fully automated, topically arranged, intuitive, and easy-to-use online service that is available 24 hours a day, seven days a week. However, even with automated bidding features, participating in an online auction requires more effort than buying fixed price goods, and once the auction is over, most buyers have to send a check or money order and then get the merchandise up to two weeks later. Buyers have the option to purchase items in an auction-style format or at a fixed price through a feature called Buy It Now.
More than 500 million items are listed for sale each year. From Civil War to Star War items, from Beanie Babies to fine antiques, chances are that you’ll find it among eBay’s 45,000 categories of merchandise from 254,000 online sellers. “If you can’t sell it on eBay, you might as well open up the window and throw it out in the backyard because it ain’t worth a damn,” says Bob Watts, an antique dealer in Fairfield, Virginia. The Web site has over 135 million registered users worldwide.
Financial Overview for eBay
| Year |
2004 |
2003 |
2002 |
2001 |
2000 |
| Net revenues ($ mil) |
3271 |
2165 |
1214 |
748 |
431 |
| Net Income($ mil) |
778 |
442 |
250 |
90 |
48 |
| Employees |
8100 |
6200 |
4000 |
2500 |
1927 |
| Net profit margin |
23.8% |
20.4% |
20.6% |
12.1% |
11.2% |
People spend more time on eBay than any other online site, making it the most popular shopping destination on the Internet, Users often refer to eBay as a community—a group of people with similar interests. For example, Dr. Michael Levitt by day is a distinguished medical researcher at the Minneapolis Veterans Medical Center, but by night, he is an eBay warrior. Levitt is a collector of antique California Perfume Company bottles. Every night he logs on to eBay to see if anything new is being offered. He has purchased hundreds of bottles through eBay simply because it’s the most convenient way to connect with sellers.
The Web site requires that all new sellers have a credit card on file, insurance, authentication, and escrow accounts. Buyers and sellers can check the “reputation” of anyone using eBay. A Feedback Forum is provided, through which eBay users can leave comments about their buying and selling experiences. If you’re a bidder, you can check your seller’s Feedback Profile before you place a bid to learn about the seller’s reputation with previous buyers. If you’re a seller, you can do the same with your bidders.
BUSINESS MODEL
Unlike most e commerce companies, eBay has been profitable from the very beginning. Exhibit I contains net revenues, net income, employees, and net profit margin figures from 2000 to 2305. Most of the company’s revenues come from fees and commissions (between 1.25 and 5.0 percent of the sale price) associated with online and traditional offline auction services. Online revenues come from placement and success fees paid by sellers; eBay does not charge fees to buyers. Sellers pay a nominal placement fee, and by paying additional fees, they can have items featured in various ways. Sellers also pay a success fee based on the final purchase price. Online advertising on eBay has not made significant contributions to net revenues, and no significant revenue from advertising is expected in the near future. Additional revenues come from auction-related services, including bidder registration fees and appraisal and authentication.
Its online business model is significantly different from electronic retailers. Because individual sellers, rather than eBay, sell the items listed, the company has no procurement, carrying, or shipping costs and no inventory risk. The company’s expenses are just personnel, advertising and promotion, and depreciation on the site’s hardware and software.
COMPETITION
Due to the popularity of auctions with consumers, a number of e-businesses have entered the market. Some competing Internet auctions offering a broad range of products are Amazon.com, Yahoo!, uBid, and Overstock.com. In addition to these multicategory sites, there are vertical auction sites specializing in a single category of merchandise such as stamps or baseball cards.
Perhaps the most significant competitor is Amazon.com, which launched an auction site in 1999. Amazon has a well-known and highly regarded brand name and substantial traffic on its Web site. (Amazon is the most widely known e-business, with eBay ranking third in brand awareness.) When Amazon launched its auction site, it offered some unique benefits to customers, including a no-deductible, no-haggle, no third-party money-back guarantee for purchases up to $250 and a feature called Going, Going, Gone that extends the auction for 10 minutes if a bid is made in the last 10 minutes before closing. On eBay, it is common for items to be picked off in the closing minutes by vigilant consumers who make the last bid.
Amazon is known for the usability of its site. In response to Amazon’s entry, eBay took steps to make buying and selling easier. It now offers a Personal Shopper program that searches out specified products and My eBay, which gives user information about current eBay activities, including bidding, selling, account balances, favorite categories, and recent feedback.
Finally, some Internet businesses have arisen that simply search and display summary information from many auction sites to enable comparison shopping. However, eBay sued one such site and has used technology to block access of another site to prevent them from gathering and displaying eBay auction data.
Questions:
1. What are the advantages and disadvantages from the buyer’s and seller’s perspectives of purchasing merchandise through Internet auctions like eBay?
2. Will a significant amount of retail sales be made through Internet auctions like eBay in the future? Why or why not?
3. What are eBay’s competitive advantages? Will it be able to withstand the competition from other auction sites like Yahoo! And Amazon’s auctions?
CASE – 2
How Much for a Good Smell?
For the past two Christmas seasons, Courtney’s, an upscale gift store, has carried a sweet-smelling potpourri in a plastic bag with an attractive ribbon. Heavily scented with cloves, the mixture gives a pleasant holiday aroma to any room, including the store.
Two years ago, the mixture cost $4.50 a bag. Courtney’s (the only store in town that carried it) sold 300 pieces for $9.50. Courtney’s supply ran out 10 days before Christmas, and it was too late to get any more.
Last year, the manufacturer raised the price to $5.00, so Courtney’s raised its retail price to $9.95. Even though the markup was lower than the previous year, the store owner felt there was “magic” in the $10 price. As before, the store had a complete sellout, this time five days before Christmas. Sales last year were 600 units.
This year, the wholesale price has gone up to $5.50, and store personnel are trying to determine the correct retail price. The owner once again wants to hold the price at $10 ($9.95), but the buyer disagrees: “It’s my job to push for the highest possible markup wherever I can. This item is a sure seller, as we’re still the only store around with it, and we had some unsatisfied demand last year. I think we should mark it $12.50, which will improve the markup to 56 percent. Staying at $10 will penalize us unnecessarily, especially considering the markup would be even lower than last year. Even if we run into price resistance, we’ll only have to sell 480 to maintain the same dollar volume.”
The owner demurs, saying, “This scent is part of our store’s ambiance. It acts as a draw to get people into the store, and its pleasant smell keeps them in a free-spending state of mind. I think we should keep he price at $9.95, despite the poorer markup. And if we can sell many more at this price, we’ll realize the same dollar gross margin as last year. I think we should buy 1,000. Furthermore, if people see us raising a familiar item’s price 25 percent, they might wonder whether our other prices are fair.”
Questions:
1. What prices caused Courtney’s charge?
2. Which price would result in the highest profit?
3. What other factors should Courtney’s consider?
4. What price would you charge, and how many units would you order?
CASE – 3
Promoting a Sale
A consumer electronic chain in the Washington, DC, area is planning a big sale in its suburban Virginia warehouse over the three-day President’s. Day weekend (Saturday through Monday). On sale will be nearly $2 million worth of consumer electronic products, 50 percent of the merchandise sold in the store. The company hopes to realize at least $900,000 in sales during the three days. In the retailer’s past experience, the first day’s sales were 50percent of the total. The second day’s were 35 percent, and the last day’s, 15 percent. One of every two customers who came made a purchase.
It’s known further that large numbers of people always flock to such sales, some driving as far as 50 miles. They come from all economic levels, but all are confirmed bargain hunters. You’re the assistant to the general merchandise manager, who has asked you to plan the event’s marketing campaign. You have the following information:
1. A full-page Washington Post ad costs $10,000, a half page ad costs $6,000, and a quarter-page ad costs $3,500. To get the maximum value from a newspaper campaign, it’s company policy to always run two ads (not necessarily the same size) for such events.
2. The local northern Virginia paper is printed weekly and distributed free to some 15,000 households. It costs $700 for a full page and $400 for a half page ad.
3. To get adequate TV coverage, at least three channels must be used, with a minimum of eight 30- second spots on each at $500 per spot, spread over three or more days. Producing a TV spot costs $3,000.
4. The store has contracts with three radio stations. One appeals to a broad general audience aged 25 to 34 years. One is popular with the 18-to-25 group. A classical music station has a small but wealthy audience. Minimum costs for a saturation radio campaign, including production, on the three stations are $8,000, $5,000, and $3,000, respectively.
5. To produce and mail a full-color flyer to the store’s 80,000 charge customers costs $10,000. When the company used such a mailing piece before, about 3 percent responded.
Questions:
1) Knowing that the company wants a mixed-media ad campaign to support this event, prepare an ad plan for the general merchandise manager that costs no more than $40,000?
2) Work out the daily scheduling of all advertising?
3) Work out the dollars to be devoted to each medium?
4) Justify your plan?
CASE – 4
Enterprise Builds on People
When most people think of car rental firms, they think of Hertz, Alamo, Budget or Avis, but Enterprise is the largest and most profitable car rental business in North America. The company operates 700,000 rental and fleet vehicles worldwide and has annual revenues of $7.4 billion. In 2005, Enterprise was listed as number 16 on the Forbes “500 Largest Private Companies in America” list. Enterprise operates in the United States, Canada, Germany, Ireland, and the United Kingdom.
In 1957, Jack Taylor started Enterprise with a unique strategy. Most car rental firms targeted business and leisure travel customers who arrived at an airport and needed to rent a car for local transportation. Taylor decided to target a different segment—individuals whose own cars are being repaired, who are driving on vacation, hauling home improvement materials, providing an extra vehicle for an out-of-town guest, or, for some other reason, simply need an extra car for a few days.
The traditional car rental companies have to charge relatively high daily rates because their locations in or near airports are expensive. In addition, their business customers are price insensitive because their companies pay for the rental expenses. Whereas the airport location is convenient for customers traveling by air, this location is inconvenient for people seeking a replacement car while their car is in the shop. Although Enterprise has airport locations, it also has rental offices in downtown and suburban areas, near where its target market lives and works. The firm provides local pickup and delivery service in most areas.
Enterprise’s human resource strategy is a key to its success. The firm hires college graduates for its management trainee positions because it feels that a college degree demonstrates intelligence and motivation, Rather than recruiting the best students, it focuses on hiring people who were athletes or officers of social organizations, such as fraternities, sororities, and clubs, because they typically have the good interpersonal skills needed to effectively deal with Enterprise’s customers.
Jack Taylor’s growth strategy was based on providing high-quality, personalized service so that customers would return to Enterprise when they needed to rent a car again. But operating managers were compensated on the basis of sales growth initially, not customer satisfaction. So service quality declined.
The first step Enterprise took to improve customer service was to develop a customer satisfaction measure. The questionnaire, called the Enterprise Service Quality Index, was developed on the basis of input from the operating managers. Thus, the managers felt ownership of’ the measurement tool. As the index gained legitimacy, Enterprise made a big deal about it. It posted the scores for each location prominently in its monthly operating reports—right next to the net profit numbers that determined managers’ pay. The operating managers were able to track how they were doing, and how all their peers were doing, because all of the locations were ranked.
To increase the motivation of’ managers and improve the service at their location, Enterprise announced that managers could be promoted only if their customer satisfaction scores were above the company average. Then it demonstrated that it would abide by this policy by failing to promote some star performers who had achieved good growth and profit numbers but had below-average satisfaction scores.
To provide a high level of service, new employees generally work long, grueling hours for what many see as relatively low pay. They, like all Enterprise managers, are expected to jump in and help wash or vacuum cars when the agency gets backed up. Bu all this hard work can pay off. The firm does not hire outsiders for other than entry level jobs. At Enterprise, every position is filled by promoting someone already inside the company. Thus, Enterprise employees know that if they work hard and do their best, they may very well succeed in moving up the corporate ladder and earn a significant income.
Questions:
1. What are the pros and cons of Enterprise’s human resource management strategy?
2. Would you want to work for Enterprise? Why or why not?
3. How does its human resource strategy complement the quality of customer service delivered by its representatives?
CASE – 5
Diamond in the Rough
(Christmas Bonus)
Ruth Diamond, president of Diamond Furrier, was concerned that sales in her store appeared to have flattened out and was considering establishing a different method of compensating her salespeople.
Diamond was located in an affluent suburb of Nashville, Tennessee. Ruth’s father had founded the company 40 years earlier, and she had grown up working in the business. After his retirement in 1980, she moved the store into an upscale shopping mall not far from its previous location, and sales had boomed most immediately. Rising to just over million in five years. However, once it had reached that sales volume, it remained there for the next three years, making Ruth wonder whether her salespeople had sufficient incentive sell more aggressively.
Diamond’s staff was all women, ranging from 27 to 58. There were four full-timers and four part-timers (20 hours a week), all of whom had at least three years of experience in the store. All of them paid at the same hourly rate, which was $10; there was also a liberal health benefit plan. Employee morale was excellent, and the entire stall displayed strong personal loyalty to Mrs. Diamond.
The store was open 78 hours a week, which meant that there was nearly always a minimum staff of three on the floor, rising to six at peak periods. Diamond’s merchandise consisted exclusively of fur coats and jackets, ranging in price from $750 to more than $5,300. The average unit sale was about $2,000. Full-timers’ annual sales averaged about $160,000, and the part-timers’ were a little over half of that.
Mrs. Diamond’s concern about sales transcended her appreciation for her people’s loyalty. She had asked them, for example, to maintain customer files and call their customers when the new styles came in. While some of them had been more diligent about this than others, none of them appeared to want to be especially aggressive about promoting sales.
So she began to investigate commission systems and discussed them with some of her contacts in the trade. All suggested lowering the salespeople’s base pay and installing either a fixed or a variable commission rate system.
One idea was to lower the base hourly rate from $10 to 7 and let them make up the difference through a 4 percent commission on all sales, to be paid monthly. Such an arrangement would allow them all to earn the same as they currently did.
However, she realized that such a system would provide no incentive to sell the higher-priced furs, which she recognized might be a way to improve overall sales. So she considered offering to pay 3 percent on items priced below $2,000 and 5 percent on all those above. Either of these systems would require considerable extra bookkeeping. Returns would have to be deducted from commissions. And she was also concerned that disputes might arise among her people from time to time over who had actually made the sale. So she conceived of a third alternative, which was to leave the hourly rates the same but pay a flat bonus of 4 percent of all sales over $1 million, and divide it among the people on the basis of the proportion of hours each had actually worked. This “commission” would be paid annually, in the form of a Christmas bonus.
Questions:
1) What are the advantages and disadvantages of the various alternatives Ruth Diamond is considering?
2) Do you have any other suggestions for improving the store’s sales?
3) What would you recommend? Why?
CASE – 6
Home Depot Changes Directions
Founded in Atlanta, Georgia, Home Depot has grown into the world’s largest home improvement specialty retailer and the second-largest retailer in the United States. Twenty years of consistent growth is quite an achievement for any retailer; however, due to this growth, Home Depot is a much different company than it was when it was founded by Bernard Marcus and Arthur Blank in 1978.
Changes in the company, put into motion by the new CEO, Bob Nardelli, shook up the way Home Depot does business.
HISTORY AND CULTURE OF THE COMPANY
During Home Depot’s first 20 years, Bernard Marcus was CEO. In 1997, Arthur Blank succeeded his partner’s place at the top of the company. In founding Home Depot, the partnership of Marcus and Blank revolutionized home improvement shopping by creating a different kind of store.
Warehouse is a better term for the stores’ layout; each location stocks large volumes of goods that enable the company to compete by maintaining low prices. Because Home Depot’s primary customer is the individual home owner or small contractor, the stores also offèr know1edgeable customer service to assist those in need of a little direction. In fact, the company took this service further by offering how to clinics and longer four-week courses in its Home Depot University to educate customers about various home improvement projects, such as laying tile and caulking bathrooms. Thus, Home Depot effectively combined the strategies of low price and high service, not commonly seen in retailing.
Home Depot’s “do-it-yourself” slogan was not just aimed at customers. This philosophy was fostered by the founders and trickled down through the entire company Home Depot grew, not as a part of complex plan, but as a result of a good business idea, good people and some experimentation with new projects such as the Expo home decorating stores. Home Depot’s corporate structure was Very decentralized: many typical corporate policies were nonexistent in the firm. Each store manager was also a do-it-yourselfer and had a significant amount of control in making decisions pertaining to such areas as merchandising, advertising, and inventory selection for a particular area. Thus, Home Depot stores tended to be less homogeneous in their merchandise offerings than many other national retail chains.
But this decentralization of decision making allows managers to feel a stronger sense of ownership in a store’s business. Associates of the company demonstrate a great deal of loyalty and pride in the company. Many store associates are hired with strong background experience in home improvement and are able to pass their knowledge along to customers. By building an enthusiastic staff, Home Depot has been able to deliver its promise of exceptional customer service.
FINDING A NEW LEADER
In 1999, with well over 900 stores, a market share of 24 percent, and several growth initiatives, Home Depot exuded success. However, historical success and future success are different concepts. Home Depot’s board of directors was becoming increasingly unhappy. The company’s performance at the time was faltering with a sharp drop in stock price in October 2000. After disputes about strategy, stores, and people, Home Depot’s directors finally took action and so set out to find a leader capable, in their view, of continuing the firm’s growt. in sales and profits.
The board found their man in Bob Nardelli. At the time, Nardelli was vying for Jack Welch’s position as CEO of GE but lost the battle to Jeff Immelt. Althogh he was passed up by GE, Bob Nardelli’s career has been impressive, to say the least. From playing football at western Illinois University to starting as a manufacturing engineer at GE, Nardelii’s attitude was one of persistence and relentless hard work, Nardelli managed to work up through GE to the position of rnanufcturing Vice President, left to join the equipment maker Case as an executive vice president, and then returned to GE to run the Canadian appliance business. He then continued to prove himself at GE as the head of GE Transportation and CEO of GE Power Systems. Throughout his career at GE, Nardelli was recognized for his ability to improve operations and execute, but unfortunately, he was not viewed as a strong strategic leader. Believing he was finally in the right position to succeed Welch, Nardelli was
very disappointed at the announcement of Immelt’s appointment. Home Depot quickly snatched Nardelli up, placing him as CEO of Home Depot in December 2000. Nardelli redirected his energy into a mission to develop Home Depot.
CHANGES AT HOME DEPOT
Since Nardelli took the lead at Home Depot, the company has experienced significant changes. Home Depot is shifting toward a more centralized organization, one that can more efficiently handle the operations of a 1,400- store company in Canada, Mexico, and the United States. For example, buying, once handled by nine regional offices, is now located at corporate headquarters in Atlanta. The company as a whole benefits from consolidation; buyers can get larger quantities of goods at lower costs, but how does this affect the do-it-yourself store manager? Nardelli, always a relentless workaholic, expects those around him to have the same attitude by holding frequent meetings and treating weekends like any other day of business.
Although a “can do, will do” atmosphere is necessary to implement Nardelli’s plans, the hasty shift from laid- back to no-nonsense is creating some anxiety within the organization. In the ffrst 19 months of his office, Nardelli lost 24 of 39 senior officers and has brought in several new faces, many from outside the retail industry. One newcomcr, recruited by the new CEO, is Dennis Donovan from GE. Nardelli, believing in Donovan’s efficiency, has made him an exceptionally high-paid chief of human resources.
Changes are not just affecting Home Depot’s associates. In the past, Home Depot’s customer return policy was simply to give cash back, no matter what. Although this was fantastic customer service, without receipt restrictions, abuse of the policy was out of control. Home Depot will now save close to $10 million annually with a new return policy of only store credit without a receipt.
Nardelli is applying the GE mindset, one characterized by strict measurement emphasizing efficiency, to his new company. Home Depot is now using GE’s Six Sigma quality control method and quickly increasing the company’s use of the Internet. Another new focus is that on associate training and evaluation. Pre-Nardelli, Home Depot had 157 different associate appraisal forms. All 295.000 associates are now reviewed using just two different forms.
These changes do not mean that the company is less interested in developing its people; in fact, Nardelli is trying to create an environment that will best highlight individual’s abilities. At Home Depot’s headquarters in Atlanta, the company is forming a leadership institute offering courses on leadership, merchandising, store planning, financial operations, and Six Sigma to executives with high potential. Nardelli wants a “coaching environment” that promotes succession planning and avoids the recent incident of having to hire a CEO from outside the company. Despite Nardelli’s efforts, the market has not been kind to Home Depot. In Nardelli’s first six months, the stock price rose from $39 to $53 but then curiously fell 10 percent after a first quarter announcement of 35 percent profits growth. Quarterly earnings continue to grow as in the past, but unfortunately, Home Depot’s stock price is not reflecting this trend.
COMPETITION AND GROWTH POTENTIAL
As Home Depot struggles with its own growing pains, the company must also consider the ever-increasing competition from Lowe’s. By placing stores in directly competing areas and growing at a faster rate than Home Depot, Lowe’s is definitely a factor in future planning. Lowe’s best advantage is that it stores are designed with less of a “warehouse” feel, having wider aisles and better lighting. Store appearance may not be a crucial factor, but it is definitely a differentiating feature for a female shopper. And women are increasingly doing a greater percentage of home irnprovement shopping. Home Depot is trying to address this issue by cleaning up and modernizing its store look with lower shelving and different product mixes.
Extending its already strong business targeted at individual customers, Home Depot is now opening several professional stores for contractors, developers, and superintendent or maintenance people. The firm is also looking to expand through purchases of European home improvement companies.
Questions:
1) What is the best way for the Home Depot to continue to grow?
2) Can Home Depot maintains its current market position with its new policies and increasing competition?
3) Will more efficient operations and increased centralization be effective in streamlining Home Depot’ business?
4) How might the shifts in corporate culture affect executives, management, and associates?
CASE – 7
Can Wal-Mart Improve Its Company Image?
The company Sam Walton built has become the world’s number one retailer. The organization has grown in a variety of retail formats, including Wal-Mart Stores, Supercenters, Sam’s Clubs, Neighborhood Markets, online, and internationally. Wal-Mart operated units in the following countries as of April 2005:
| Country |
Number of Stores |
Country |
Number of Stores |
| Argentina |
11 |
South Korea |
16 |
| Brazil |
151 |
Mexico |
700 |
| Canada |
261 |
Puerto Rico |
54 |
| China |
45 |
United Kingdom |
285 |
| Germany |
89 |
United States |
3719 |
As Wal-Mart has grown, it has also become a large job creator. According to the company home page, “more than 1.2 million Associates work at Wal-Mart in the U.S. The majority of Wal-Mart’s hourly store associates in the U.S work full-time. That’s well above the 20-40 percent typically found in the retail industry. We are a leading employer Hispanic Americans, with more than 139,000 Hispanic associates. Wal-Mart is one of the leading employers of African Americans, with more than 208,000 African-American associates. More than 220,000 of our associates are 55 or older. We project we will create positions for more than 100,000 new jobs in 2005.”
WAL-MART FACES CRITICISM
Over the years, Wal-Mart has had its share of negative press about its labor and management practices. As a large company and employer, Wal-Mart has grown to expect attention and criticism. Some of the key areas of concern include discriminating against women, resisting unions, paying lower wages and offering fewer benefits, purchasing merchandise from China, employing contractors who hire illegal immigrants, and growing too rapidly. Constructive criticism has helped Wal-Mart improve its operations; however, the company takes issue when the criticism becomes an unwarranted attack that tarnishes their reputation.
ADVERTISING CAMPAIGN TO IMPROVE CORPORATE IMAGE
To reverse negative criticism and improve its public image, Wal-Mart launched an informative Web page, http://www.walmartfacts.com/Default.aspx; had key high- ranking executives appear for interviews on ABC, CNN, Fox, and CNBC; and took out full-page advertising in over 100 newspapers. Wal-Mart is proactively fighting back against critics and special interest groups to dispel myths about its employment and business practices.
To tell the Wal-Mart story and clear up misperceptions, the Web page contains company news and press releases, illustrates community impact and involvement programs, describes employee benefits and wages, and explains the status of current lawsuits facing the organization. This non-commercial Web page also summarizes Wal-Mart’s diversity and equal employment opportunity policies, international operations, employee promotion strategies, charitable giving, and merchandise sourcing. An important objective of the Web site is to help associates, consumers, reporters, and investors learn about the company.
To reach the mass media and take control of its image, Wal-Mart’s chief Executive Officer, H. Lee Scott, appeared on many networks including ABC, CNN, Fox, and CNBC for interviews. As part of this promotional campaign to show Wal-Mart in a positive light, he also granted interviews with US4Todqy and the Associated Press.
Wal-Mart put a full-page ad in more that 100 newspapers including the New York Times and The Wall Street Journal on January 13, 2005. The ads contained a five-paragraph letter from CEO Scott in response to misinformation about Wal-Mart. To set the record straight, the national print ads stated that the average wage for full-time hourly workers at Wal-Mart is $9.68, which is almost twice the federal minimum wage of $5.15 per hour.
Questions:
1) Can this type of advertising campaign improve Wal-Mart’s image in the eyes of associates, consumers, investors, and the press?
2) What else could Wal-Mart do to improve its reputation?
3) Go to Wal-Mart Stores home page at http://www. walmartstores.com and click on College Recruiting. Explore what this page has to offer. If a Wal-Mart recruiter came to your campus, would you consider Wal-Mart as an employer? Why or why not?
CASE – 8
Competitive Environment in the Teen/College Apparel Market
Jennifer Shaffer, a 17-year-old living in Newton, Massachusetts, used to shop at Abercrombie & Fitch (A&F) once a month. She thought the prices were high, but the brand name and image appealed to her. She says, “It’s like I really had to have Abercrombie.’ Then an American Eagle (AE) store opened about 15 minutes from her home. Now she shops at the AE store about twice a month and rarely goes to the A&F store. “They look the same, and they’re both really cute,” she says. “But American Eagle’s prices are a little cheaper.”
Both A&F and AE are still growing into their present strategy of selling casual apparel to the teen/college market. When A&F was established as an outdoor sporting goods retailer over 100 years ago, it sold the highest quality hunting, fishing, and camping goods. A&F also outfitted some of the
greatest explorations in the early part of the twentieth century, including Robert Perry’s expedition to the North Pole and Theodore Roosevelt’s trips to the Amazon and Africa.
Over time, its tweedy image became less attractive to consumers. The chain experienced a significant declines sales and profits, and in 1977 it was forced to declare bankruptcy. The company, initially acquired by Oshman’s Sporting Goods, did not experience a turnaround until The Limited Inc. acquired it in 1988. Initially, The Limited positioned A&F as a tailored clothing store for men. In 1995, The Limited repositioned A&F to target both males and females in the teen and college market with an emphasis on casual American style and youth.
In 1999. The Limited sold A&F. which now operates as a separate company that operated 351 Abercrombie & Fitch stores, 167 abercrombie stores, 271 Hollister Co. stores, and 5 RUEHL stores at the end of May 2005. It operates e-commerce Web sites at www.abercronibie.com, www.abercrombiekids.com, and www.hollisterco.com.
American Eagle, though lacking the rich tradition of A&F, also was positioned as outfitter when it started in 1977. Initially offering apparel only for men, Amerian Eagle shifted its focus to teens and college students in 1995. In 2000, it acquired two Canadian specialty retail chains—Bluenotes/Thriftys and Braemar. The Braemar locations were converted to American Eagle stores, whereas the Thriftys stores are being converted into Bluenotes stores specialty stores that target a slightly younger, more urban teen demographic and that carry more denim merchandise. Today, American Eagle has 779 AE stores in 50 states, the District of Columbia, and Puerto Rico and 70 AE stores in Canada. It also operates via its Web business, www.ae.com.
Even though A&F and AE have evolved from their roots, there is still an outdoor, rugged aspect in their apparel. Both retail chains carry similar assortments of polos, pants, t-shirts, jeans, and sweaters. All the apparel and accessories carry the store’s private-label brand. A lot of the merchandise is athletically inspired.
The rivalry between A&F and AE is intense; A&F even filed a lawsuit in 1998 in federal court accusing AE of copying its clothing styles and catalog. The courts found that though the designs were similar, there was nothing inherently distinctive in A&F’s clothing designs that could be protected by a trademark. But the courts have ruled that Abererombie’s catalog design and image are worthy of trade dress protection. Trade dress is the overall image of a product used in its marketing or sales, composed of the nonfunctional elements of its design, packaging, or labeling (such as colors, package shape, or symbols). However, the court also felt that AE’s catalog had a different image that did not infringe upon the image of the A&F catalog.
It was the catalog and home page that first drew Jennifer to an A&F store a couple of years ago. She recalls going through the catalog and browsing the Web page with some girlfriends and looking at the muscular young men featured “The guys in the magazine— that’s what made us all go,” she says. This young and sexy image is enhanced by store signage featuring scantily clad lacrosse players and young beachgoers. Abercrombie & Fitch has exploited this image by introducing a line of intimate apparel in 2001. Intimate apparel is now one of the best selling merchandise categories in the stores.
To reinforce its brand image and communicate with its target audience, AE teamed up with MTV to sponsor MTV Spring Break 2005. As a major sponsor, AE was the official apparel provider for the network’s hottest annual event, broadcast from Cancun, Mexico, on March 18—20, 2005. American Eagle provided the wardrobe for the stars of Dawson’s Creek, and it also has its apparel featured in various movies. While its commercials are less suggestive than those of A&F, its “Get Together” commercials feature college- and high-school–age teens dancing and then coming together and kissing.
Even though A&F devotes its advertising and marketing resources to reaching college-age consumers, many teenagers also patronize its stores. The company is concerned that the image of its stores will be negatively affected if they become a place for teenagers to hang out. The development of the Hollister chain is one of the approaches that A&F has taken to preserve the A&F image while catering to the growing teenage market.
The Hollister stores are unique. Their target market consists of consumers ages 14 to 18 years. The merchandise in the stores is 20 to 30 percent less expensive than A&F’s merchandise. The styling of the merchandise is also different, with brighter colors and larger logos. However, many teenagers fail to recognize the subtle differences. They contend that it is essentially the same merchandise except at lower prices.
Furthermore, Hollister stores are roughly. 2,000 square feet smaller than A&F stores, and the store design is completely distinct. While A&F stores still convey an outdoor ruggedness in their decor, Hollister stores present a California beach—inspired theme. They want their customers to feel as though they are part of a bench party. This casual atmosphere provides young consumers with an enjoyable shopping experience. The decor in the stores inspires and evokes memories of hot summer days at any time of the year.
Questions:
1) What, if any, are the differences in A & F’s and AE retail strategy?
2) What are the brand images of A&f and AE? What words and phrases are associated with each retailer’s brand name?
3) List other specialty apparel retailers that target the same customers as A&F and AE. How do these brands differentiate themselves in the competitive retail environment? Construct a product positioning map to illustrate.
4) Which retailer(s) has (have) the stronger competitive position? Why?
