Eddie Bauer, Inc: One Brand, One Voice, One Customer Essay Example
Eddie Bauer, Inc. was a $2 billion apparel retailer in 1999. However, the preceding year was one of diminishing sales and profits of over 5%. Our goal is to increase the operating profits in the existing channels as follows: Retail 11% to 20%, Catalog 4% to 15%, and iMedia 19% to 25% over a period of two years from 1999 to 2001. The biggest impediment is the existing synergy in our distribution channels. The solution is to modify the synergy in the channels. We have chosen to not to completely destroy the synergy for the sake of maintaining an external appearance of the brand mantra of "One Brand, One Voice, One Customer. We are ensuring synergy for the customer externally, while internally we are breaking synergy in areas that are damaging us.
Our goal is to increase the operating profits in the existing chan...
nels as follows: Retail from 11% to 17%, Catalog from 4% to 15%, and iMedia from 19% to 25% over a period of two years from 1999 to 2001 (Exhibit 1).
In 1998, after a steady expansion, profits decreased over 5%. Focusing on improving operating profits will allow us to measure the performance of each channel, as well as acquire the necessary revenue to possibly increase market share in the future. When separating synergies, having a goal that is quantified by operating profits will allow us to assess any existing linear correlations between the channels. This will allow us to determine which channels to focus on in regards to improving performance. Also, increasing operating profits can be achieved through heavy internal manipulations of decreasing costs and increasing prices, which can be achieved without
increasing promotion and advertising costs.
Increasing profitability is of the utmost importance as a market follower because doing so will allow us to further develop products to fit our target segment, refine infrastructure for I-media, and set up an efficient inventory management system. We can command more market share and drastically increase sales, possibly becoming a market challenger, when we are a more profitable company (Exhibit 2).
Where is quantifiable measure derived from?
When deciding on the appropriate amounts to increase operating profits, Eddie Bauer Inc.'s business portfolio grid adequately shows which Eddie Bauer channels we should focus on (Exhibit 3). We should strive to improve profits in the least profitable channel, which is the catalog channel (the Dog of Eddie Bauer's portfolio). We will increase the catalog operating profits from 4% to 15%, which is a 5.5% increase per year. Because the iMedia and retail channels are considered the Question Mark and Cash Cow respectively, we want to gradually build them into "Stars." Although $75 million in costs can be saved by discontinuing the catalog channel, it is necessary to continue with catalog operations due to its importance in the marketing strategy and to maintain Eddie Bauer's heritage. Both iMedia and retail will experience a 3% moderate increase in operating profits yearly. In retail stores, the 6% increase in operating profit margin is attainable, as our competitors, Gap and Abercrombie ; Fitch have operating profits above 20%.
Why this time frame?
Two years is a modest time frame to cut costs, gradually increase prices, and do market analysis on the customer perception of separation of channel synergy. A lower time frame will not allow us to adequately assess if
the synergy separation is actually damaging the company. Also, in such a rapidly changing and competitive market, we need to react as soon as possible.
1. One possible goal is to increase overall market share. Although this goal will serve as an adequate measure for the performance of the entire company, currently Eddie Bauer is a market follower striving to maintain market share. The existing market share of 1.5% is too small for Eddie Bauer to attempt to achieve an increase in market share. Also, this measurement will not adequately demonstrate the performance of each channel. Increasing market share would involve the use of intense advertising and promotion, which would be too costly and would decrease profits even more.
2. Another alternative goal is to increase revenue. This is not the best goal to strive for currently because revenue earned does not assess for profits generated. In 1998, profits declined over 5% although revenue remained considerably high at $2 billion. Along with market share, having a goal to increase revenue will heavily be contingent upon increasing promotion and advertising costs, thus decrease profits further. This external manipulation will take a longer time to receive a return on investment due to having to manipulate the consumers buying behavior.
* Diversification ; extensive array of products: men ; women clothes-casual and office, furniture ; furnishings, eyewear, bicycles, vehicles
* Website posting triple-digit sales growth
* Synergy in channels improves customer perception (ie. Return policy)
* Product-oriented organizational structure
* Quality/timeless products attract consumers that are not price sensitive
* Target market: 40s, affluent, educated, married, active, etc=5% market share of clothing
* Brand recognition among existing target market
* Multiple channels increase brand accessibility
timing not synergized between channels
* Catalog primary marketing tool of company-1/3 prospects ; 2/3 existing customers
* Attempting to reach too many target segments
* 5% decline in sales ; profits
* Most of executives strong in catalog development, but catalog not successful due to integration of channels
* Stock outs occurring frequently in retail stores, as compared to competitors
* Limited advertising expenditures, as compared to competitors
* Same promotion tools used through all channels
* Integrated return policy damages retail store sales
* Poor catalog performance-high return rate of merchandise, only 1/4 of revenue generated from catalog
* Target group positioning-as compared to competitors-casual 6th place, catalogs 4th place
* Limited sku's in retail stores-50% women and 30% men products are unavailable as compared to catalog
* Northwestern heritage hard sell in other regions
* Brand recognition: company heritage not known to buyers under 35
* Increase in internet usage and popularity for shopping
* Target segment (quality/timeless segment) equals 19% of all adult cloth buyers & 28% clothing expenditures ($39 billion)
* Right tactics could attract "other" groups, thus increasing market share
* Major competitors:
o retail-The Gap and Abercrombie & Fitch
o catalog-Victoria's Secret (no integration of retail and catalog channels, 31% of revenue in catalog) and L.L. Bean ; Lands' End (limited retail for latter two for brand building and demand generation)
* Major advertising spending from competitors
* Barriers of iMedia
o Challenges with dial up speed internet connections
o Limited internet capabilities in customer homes
* Executive talent recruitment competition from Amazon and Microsoft
Our major impediment is the excess of synergy in the distribution, which has lead to channel conflicts. Developing synergies between the three different channels, retail, catalog, and iMedia, dilutes Eddie Bauer's abilities and resources to thoroughly focus on
each channel and it increases channel conflicts.
Conflicts in the synergy between the channels exist on many levels. For example, retail stores cannot sell all the products that are offered through catalogs. This is misleading to the customer and they often leave the retail stores empty handed. Also, there is a major need to improve the synergy between the channels because of the existing low inventory turnover. Eddie Bauer has an inventory turnover ratio of 1.0, as compared to 5.0 and 9.5 for The Gap and Abercrombie ; Fitch, respectively (Exhibit 2). This low inventory turnover ratio reduces the company's cash flow and adversely affects operating profits. Having more efficient inventory processes will decrease costs. Inventory carrying costs can be reduced by not overstocking the various channels. Once this ratio is improved, operating profits will improve.
Also, the channels had different economics for which the synergy did not account. Although the gross margins held steadily at 50%, the operating costs of each channel drastically decreased overall operating profits. Operating profits will be improved once distribution is corrected. Currently, SG&A (Selling, General and Administrative) costs account for about 37.3% of Eddie Bauer's overall sales revenue, as compared to The Gap, Abercrombie ; Fitch and Lands' End, 26.5%, 21.7% and 39.7% respectively (Exhibit 2).
The existing synergy of the iMedia and catalog channels sharing call centers creates conflict because of the product and price confusion that may arise from customers viewing catalog versus iMedia. This could easily lead to bad customer service and hurt sales.
When evaluating the competition, there is a successful separation in the channels. For example, Victoria Secret has completely separate retail and catalog channels which only
integrate with the design teams. Subsequently, Victoria Secret Catalog represents 31% of total revenue, with returns being minimal. The synergy of Eddie Bauer's catalog and retail returns adversely affects retail store sales, and 25% of all catalog purchases are returned.
This is also a major impediment because the synergy among channels constrains pricing and does not allow flexibility across regions, which adversely affects operating profits through sales. This synergy constrains product assortment. One existing practice that proves that a lack of synergy is positive is the non-uniform timing of having products come out in catalog first, instead of being uniform across the channels. This allows a measurement of demand, thus maximizing pricing.
Also, having both multiple channels and an emphasis on synergy complicates recruiting of executives. This increases operating costs and often impaired employee expertise by having them concentrate on integrating channels. Employees with experience and expertise in catalog were made to work in retail and vice versa, which leads to frustration and dissatisfaction. Recruiting for Imedia was extremely difficult with intense competition from companies like Amazon and Microsoft. Also without a high share price or any chance of an IPO, Eddie Bauer was often outbid for e-commerce talent. This is evident by the 4% operating profit of the catalog channel, despite having many executives with catalog development expertise.
1. One possible alternative impediment is that the promotional activities have not built brand awareness of the history of Eddie Bauer among younger prospective customers. This may be beneficial that the view of the company is not limited to outwear. Also, there are currently not enough expenditures available to create brand awareness as compared to competitors. This problem
is not a major impediment because while Eddie Bauer does not have the same advertising costs as competitors, marketing is still heavily focused on in catalog distribution. 1/3 of catalogs are mailed to prospective customers.
2. Another alternative impediment is Eddie Bauer's management of the products offered to the consumer. Although the company has a masculine image, 70% of all goods sold in the catalogs were women products. In as much, 70% of retail customers were women with 45% of these sales being women products. This is not a major impediment because the masculine image does not adversely affect sales. This image is important in maintaining certain aspects of the heritage and increases brand differentiation. This image also helps overall profits because the women are attracted to the store to make purchases for their male counterparts, but acknowledges and appreciates the convenience in availability and timeless quality of the women products.
The solution to our impediment of synergy between channels is to modify this synergy. Because we are in the maturity stage of the product life cycle, we want to adapt our marketing strategy to this stage of the product life cycle by primarily building an intense distribution by separating the synergy between the channels of retail, catalog, and iMedia. Because of this intense building in place, we have decided to maximize sales also by diversifying the product line to include more women products, pricing will remain premium, which will still beat competitors, and our promotion activities will encourage brand loyalty, and advertising will stress the quality and timelessness of our brand. We will attempt to encourage brand switching once our competitive strategy switches to that of
a market challenger.
Our target demographic is men and women in their 40`s, married, with active lifestyles, had young children who have now left home. They belong to the quality/timeless segment. 65% of our target group will be existing customers and 35% will be new customers.
Because the masculine heritage does not adversely affect the sales, the retail stores will continue to emphasize this image. In order to cater to the demand of women, a larger number of SKU's will be developed for women than before. In order to reduce the inventory carrying costs for the retail channel, we will have a narrower product line while the catalog can carry the full range (including styles and sizes). This will improve operating profits in the retail channel. In the catalog and iMedia channels, carrying the full range will not have a large impact on cost, as the additional cost would be only limited to the marginal increase in the printing cost for catalog, and is a non-existent cost in the iMedia channel. We will continue to target the quality/timeless segment with classic styles, designs and colors and clothes that offer quality, value for money and comfort.
In separating the synergies, retail stores will no longer accept returns of purchase made through catalogs. This will ensure that the retail operations would not bear the cost of the returns purchased through other channels. Also having an integrated, automated inventory management system for all the three channels will improve operating profits. This would ensure streamlined operations and less number of stock outs in all the three channels. Having a lower inventory carrying cost will increase the operating profits of all
Although we modified the synergy, we have chosen not to completely destroy the synergy for the sake of maintain an external appearance of the brand mantra of "One Brand, One Voice, One Customer. The catalog order desk in the retail stores will have a direct telephone line to a customer representative that will create customer profiles complete with preferences and give the customers a tailored ordering experience by explaining to the customer the products' details and to facilitate choice in style-item matching, colors, and sizes. Also, this tailored experience will emphasize convenient return methods, other than retail stores (such as company sponsored return shipping. This cost will be negotiated at discounted rates with preferred shipping vendors). This tailored experience, which directly matches our target market, will improve our brand equity and positioning to competitors. We are ensuring synergy for the customer, while internally we are breaking synergy in damaging areas.
To increase operating profits in all channels, specifically catalog and iMedia, prices of specialty products and sizes will be gradually and moderately increased. Our target market consumer is not price sensitive to small price changes in quality products. The ratio of cost of goods sold to net sales is 52.5 %, which is less than that of the competitors GAP & Abercrombie & Fitch, 58.7% and 57.8%, respectively. In as much, having a synergy between channels in pricing is hindering operating profits. For example, differing pricing policies for different regions should exist. Regional managers for a particular channel will decide within a common pricing framework the prices of the products.
Costs for the additional training of customer service representatives will be offset by establishing a charge
for calls to the call center during the off season. During the holiday season, in order to ensure a high level of calls that are converted into sales, we will waive these miscellaneous charges. Also, these charges will encourage customers to convert to iMedia ordering. The catalog channel will maintain high operating profit through continually decreasing the operating costs by using an automated inventory management system. Also operating profits for catalog can be increased by increasing sales as a result of a customized experience for the customers through the sales representatives.
In order to maximize operating profits, the process of recruiting executives should be differential in nature in terms of channels. This would ensure different policies for recruiting for each channel in terms of compensation and responsibilities. Recruiting efforts should be made to specifically acquire those executives with talent in the development of their prospective channels. To compete with Amazon and Microsoft for talented employees, higher compensation and benefits such as employee discounts, gift vouchers, and ESOPS should be given to potential executives.
For consistency in external consumer perception, we will continue using the brand mantra of "One Brand, One Voice, One Customer," which entails an integrated marketing communications strategy. For example, through the iMedia channel, customers will be able to check stock availability both online and in store and get real time assistance from a customer service representative via chat to help them customize styles, design, and tailor sizing to their preferences. This is an example one to one marketing.
Our promotional strategies will consist of a push and pull strategy. With the push strategy, we will be using the sales force in the retail stores, an
interactive iMedia with product suggestions, and a tailored and customized catalog call center experience that pushes the product to customer. Utilized promotional tools will consist of the following: coupons (retail), cash refunds with minimum purchases (catalog & iMedia), advertising specialties such as articles imprinted with Eddie Bauer's name given as gifts for building customer loyalty (all channels), patronage reward such as loyalty points (all channels), point of purchase such as demonstrations that take place at point of sale-like fashion shows (retail). These are examples of our usage of a pull strategy. With relationship marketing, we will provide more personalized brand experiences to create stronger consumer ties.
We will emphasize the quality/timeless factor of our brand, which will emphasize brand differentiation. Although the advertising costs will remain minimal to keep operating costs low in all channels, synergy in advertising will remain and will emphasize the classic design, styles, and colors of our products.
Print advertisement: Since we will save some money from decreasing catalog production, we will have some money to devote to print advertising. We will plan targeted advertising in the popular clothing magazines that emphasize the outdoors and also women's magazines since they make up most of our retail shoppers. Besides increasing the reach of potential customers since this has a wider scope of advertising than catalogs, our print ads will feature eddiebauer.com prominently to encourage website hits.
On-line advertisement:An Eddie Bauer email list will be created so that our customers are the first to know about the latest styles, sales, and promotions on our website and stores, and this will trigger them to visit our website.
Online banner advertising will be severed to increase website traffic and
brand awareness. We will advertise on the highest traffic portals such as Google, MSN, and Yahoo, pay for high placements when users make search engine queries regarding clothes and shopping. We will also place targeted ads on websites that we think Eddie Bauer customers are likely to visit: e.g. outdoors, nature, shopping etc. The benefit of online ads is that we will be able to identify which ads have the highest click rates and use that feedback to modify our banner ad campaign. Lastly, we believe that we will have the money to do this since we're spending less money on the catalog and cutting costs in the retail stores.
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