Table of Contents Executive summary3 Introduction3 Situation analysis4 Macro analysis4 Demographic4 Socio cultural4 Economics4 Technological5 Regulation5 Natural environments5 Micro analysis5 Industry assessment5 Market assessment6 Team domain6 Porters five forces analyses6 Rivalry among present competitors6 The threat of new entrants6 Bargaining power of buyers7 Bargaining power of suppliers7 Threat of substitute products7 Competition analysis7 Competitive advantage8 SWOT analysis8 Strength8 Weakness9 Opportunity9 Threats9 Skiwear industry attractiveness10 Marketing strategy10
Marketing objectives10 Promotion strategy11 Positioning11 Product decisions11 Product life cycle strategy12 Action plan12 Target market12 The 4 Ps12 Offensive warfare12 Budget13 Projected P&L13 Contingency plan13 Conclusion14 Reference15 Executive summary The purpose of this report is study the strategy direction for The North Face (TNF) company and make market evaluation to enter into the skiwear industry. The report will review the company’s current performance in relation to the traditional outdoor equipment market and identify sustainable competitive advantage for the new product.
TNF brand image often have often been associated with outdoor sport, exercise and a healthy life style. It also has state of art in engineering of product design. These are the competitive edge and must be utilized in establishing the new market for skiwear. Introduction Started in 1966 in San Francisco, The North Face (TNF) is known as a high performance climbing and backpacking equipment manufacturing and distribution company. Through the 1970, the brand received increasingly popularity among outdoor athletes and began sponsoring expeditions to some of the most far flung, still largely untouched corners of the globe.
Hence, The North Face mantra is Never Stop Exploring. Situation analysis Macro analysis It is essential to evaluate the macro environment in order to assess the attractiveness of the market for TNF. The macro environment can be divided into six major components, demographic, socio cultural, economic, technological, regulatory, and natural environments (Walker, 2009). Demographic By being the market leader in the outdoor clothing and equipment segment having approximately 40 per cent of the market share, the company has a large contingent of established customer base.
The age bracket of TNF’s target market could be ranging from young to middle aged customers. They vary from profession outdoor enthusiast, which is the strategic focus, to the more general camping publics. Socio cultural There is increasing momentum in the world of having a healthy life style, whereas hiking and skiing is considered as a suitable form of exercise. Economics The global financial crisis would have negative implication to the spending power of customers, not to a significant extent, but buyers would generally be more price and quality sensitive. Technological
The technological advance could assist TNF in research and development which in turn engineer better quality product. It would help to promote brand awareness using mediums like the internet. Hence customer could be better informed about the range of products. Regulation The product must comply with the Consumer Safety Act. In addition, with globalized world economy, the trade barrier is lower for international expansion. Natural environments There is an increasingly awareness in the protection of natural environment, which are often manifested in customer enjoying the mother nature, which is avorable for the image of TNF, Never Stop Exploring. Micro analysis Industry assessment 1. Engineering – TNF has product which is best made for professional outdoor enthusiast, these products have high quality and design. 2. Brand reputation – TNF has been associated with health, social tact, exercise, romance, adventure, etc. 3. Distribution – TNF has a distribution chain of specialty stores and factory outlets ready for new products. Market assessment There are identifiable customer needs in the skiwear market. The market size itself is reasonable, accounts for $216 million dollar in sales.
Team domain The untapped customer bases are also outdoor enthusiast, which in line with the TNF’s product design and sales objective. Porters five forces analyses By analyzing the porter’s five forces collectively would enable the evaluation of an industry’s long term attractiveness. Rivalry among present competitors There are many small firms in an industry and no dominant firms exist (Walker, 2009), the skiwear market is highly fragmented and the market is in pure competition, where all competitors controlling a small portion of market share.
Moreover, the switching cost for buyers are low, hence the rivalry is high and unfavorable. The threat of new entrants The threat of new entrants is high and moderately favorable due to the fact that the barrier to enter the skiwear market is low. It does not require economies of scale nor capital intensive. Bargaining power of buyers The bargaining power of buyers is high and moderately favorable. Bargaining power of suppliers Bargaining power of supplier is low and favorable. In fact TNF has its own manufacturing facility by backward integration.
It is part of the objectives by the management of TNF to align the new market production that is compatible with current machinery. Hence it is not subjected to increase in supplier cost at least in the field of skiwear. Threat of substitute products The threat of substitution is low and favorable. Substitutes are alternative product types that perform essentially the same functions (walker, 2009). Hence, skiwear has to be specifically design for skiing purpose. Simply keeping warm would not constitute a force of substitution to gain market competitive edge.
Competition analysis In the fragmented skiwear market, the overall market leader in White Stag and Roffee each at 12. 5 per cent and 8. 8 per cent respectively. There are various other competitors in the market each accounted for a small percentage of market shares. Without any purposeful marketing effort TNF accounted for 2 per cent of the skiwear market. (The North Face, Exhibit 5, p. 752) Competitive advantage The skiwear market is a reasonable direction for growth and the key success factors are as followed: 1.
Without any marketing effort, TNF traditional outdoor products act as a substitute for some of the skiwear product which accounted for 2% of the market. 2. The strength of product engineering and marketing philosophy will clearly be given TNF and competitive edge over it rivalry. 3. By utilizing the existing manufacturing and outlet facility the company could significantly reduce the cost of new capital needed for production and setting up distribution networks. SWOT analysis Strength 1.
Postioning – TNF’s current position has established itself as a premium outdoor sport equipment provider, the brand reputation is highly significant in raising public awareness of the company. 2. Engineering – The company has state of art technology in product designs, in weight, warmth, and strength they out class competitors. 3. Patent – The company’s product designs are protected by patents, hence making it impossible for competitor to inmitate the idea. 4. Networks – TNF has been sponsoring various outdoor events and expeditions throughout the world.
It is an informal channel of promoting the TNF products. 5. Trainings – TNF has training programs to assist the sales staff in terms of product knowledge. Weakness 1. Seasonal – the TNF skiwear products which is currently limited to winter in the northern hemisphere. 2. Distribution channels – There are only limited distribution channels and factory outlet which TNF uses, it is not a threat but a limitation in product expansions to a certain extent. 3. Conflicts – The company have to maintain a right balance with its retail and whole sale network, also its dealers. Opportunity . Overseas operations – TNF could expand into the oversea markets. 2. Outsource – TNF could outsource some manufacturing of its less expensive products. This could reduce some of it overheads and improve cash flows in research and development. Threats 1. Competition – in the skiwear market TNF will face fierce competition, due to low barrier to entry. 2. Counterfeit – with the increasing famous product recognition, TNF will face the problem of counterfeit in the market, especially if the company decided to go to overseas markets like china. Skiwear industry attractiveness
In this case, TNF has strong competitiveness in strength to enter into the skiwear market, because there are overlapping customer bases for buying or repurchasing new products, and also the existing facility to compliment production needs. The industry is without a market leader, with the capability, brand reputation of TNF and low market entry barriers, we predict that TNF could well establish a market presence in the next 5 years with appropriate marketing strategies. Marketing strategy Marketing objectives To maintain and increase customer base by using expansion strategy on current product line by 7%.
To explore new market through expansion into the skiwear segment, achieve a market share of 25% in 5 years time. Promotion strategy Traditionally, TNF has been using sponsorship in outdoor event as part of the marketing campaign to raise brand awareness for its traditional outdoor equipments. This reflects the market pyramid philosophy which was adapted by TNF. The logic is the management believed that word of mouth communication flowed down a chain of expertise from the mountaineer, to backpacker, to the secondary user, and finally to general camping public.
In turn the same marketing strategy is adapted by TNF skiwear and was targeting the professional skiers (The North Face, p. 751). Positioning Due the fact that TNF has been offering products combined functionality, engineering and style. Hence, the positioning of the company of the traditional product line in the perception of customers is of good quality, the trade off is the price also at the top end of the pricing scale. If TNF could continue to offer the skiwear products with the same attributes the market is looking favorable.
Product decisions Product should be focused on skiing vests and pants. This could fully utilize the existing manufacturing facility. Product life cycle strategy Because the skiwear would be in the introductory stage, it is a must to raise the brand awareness to the potential customers. Action plan Target market The target market to be pursued should be a niche market in between 17 – 45 in ages; the characteristic of the target audience should be professional skiers, and ski patrols, and have the spending power and awareness in product quality.
They could be a channel of brand awareness to others through words of mouth, which in line with TNF pyramid marketing philosophy. The 4 Ps Continue the distribution through the usual outlets and specialty stores, pricing in line with quality reputations, promotions target various event and professionals skiers. Offensive warfare Because the skiwear market is highly fragmented, there is little of no customer loyalty. TNF could engage in a marketing campaign through its distribution channels to launch its product in season.
This will increase the brand awareness in conjunction with all the other sponsorship events. Budget The total budget of 1. 5 million will be spent in launching the skiwear product, and within the next 5 years, additional to the 3. 5 million spent on outdoor equipments. Projected P&L Skiwear profit and loss (projection 1981 – 1985)| (thousands)| | | | | | | 1981| 1982| 1983| 1984| 1985| sales| | | | | | | | | manufacturing| | | 3500| 3745| 4007| 4288| 4588| retail| | | | 2200| 2354| 2519| 2695| 2884|
Total| | | | 5700| 6099| 6526| 6983| 7472| cost of sale| | | -1500| -1500| -1500| -1500| -1500| gross margin| | | 4200| 4599| 5026| 5483| 5972| selling and operating expense| | -800| -824| -849| -874| -900| contributing to overhead| | -800| -824| -849| -874| -900| corporate G&A expense| | -200| -206| -212| -219| -225| interest expense| | | -40| -41| -42| -44| -45| incentive compensation and ESOP| -40| -41| -42| -44| -45| Total| | | | 2320| 2663| 3031| 3428| 3856| Earnings after TAX| | | 1624| 1864| 2122| 2400| 2699| Contingency plan
The alternative to TNF entering into the skiwear market in the shoes market, which should also be under consideration if the skiwear segment is under perform. TNF should also considering outsource some of it productions to countries where cost is less. A different marketing philosophy could also be adapted if the initial sales did not meet the expectations. Conclusion The entry to skiwear market is feasible for TNF, it has the competitive advantage in resource and capability over its competitors. However it is essential to use sales KPIs to evaluate whether the words of mouth strategy is performing up to the task. Reference