1.0 H&M background
Hennes and Mauritz’s company is a Swedish multinational company with an endowment for retailing and designing of appeal and other accessories. The company has diversified its operations in more than 60 countries and mostly targets the young adults and the teens. Founded in 1947by Erling person, H&M is the world second largest retailer company in Sweden with fast fashion clothing.
H&M has further considered expanding its target clientele by selling children’s wear, men’s wear, home furnishing, cosmetic and footwear. As observed, H&M offers quality appeal at a relatively favourable price ranging from £14.99 to £30 (Arrigo, 2018). Moreover, the company has broadened its services in European countries and striving hard to making them accessible on the Chinese website platform like Alibaba e-commerce website. The research will further explore various strategic management issues, identify the best strategic option to implement and finally provide a well built strategic plan of implementing the strategy in H&M.
2.1 Strategic analysis
Previously, H&M was well renowned for its fashionable outfits in the US, Europe and other countries since it could reach out to most clientele through use of online stores. Eventually, its growth suddenly dropped due to the increased competition from the internet- only stores like Primark and Asos. Additionally, most of the biggest stores like Sears, Macy’s and JC Penney, were closed down which profoundly affected the US and European retailers. The consumer purchasing power declined while the sales of the company decreased tremendously. The issue of financial crises for the H&M also emerged after admitting their mistake in its strategy publicly which probe investors to pile pressure on its chief executive and the company. The established loyal customers changed their shopping styles and opted to purchases their products from other company such as Asos which had integrated an online website.
2.2 Porter’s Framework
The porter’s framework helps in analyzing the retailing industry and the current internal and external challenges it’s facing to determine its level of competitiveness in the market. the porters five forces have been depicted in the figure below:
Figure 1: Porter’s Five forces framework
Source: Porter (1979)
2.2.1 Consumer bargaining power
The consumer bargaining power in the retailing stores is high. The many retail stores emerging in the market such as Zara, Asos and Primate have fully, ventured into the fashion industry hence creating a room for the consumers to choose from different stores. The bargaining power of the consumers in the industry have influenced the profit potential of the company. This is because the buyers have increased the competition in the industry through forcing down prices and bargaining for them to acquire quality products and increasing competition among the competitors. For instance, when the buyers come purchasing the products in H&M they are concern about the purchases of large volumes of products comparative to the seller’s sales. Therefore, when a consumer comes purchasing it is evident that they have greater knowledge and information about the market prices and demand and therefore has their strong power in bargaining exert low prices for the products.
2.2.2 Threat of new entrant
The threat of a new entrant as cited by Arrigo, (2018), is high in the market. Competitors like ASOS who are online retailers have attracted most of the fashion customers thus the subsequent decline of the H&M sales. The new entrants have implemented the online websites which enable customers to purchase their products in the comfort of their home. this declines the number of consumers visiting the physical stores. For instance, ASOS, which is a new competitor may have ventured into the business as a new competitor who has been attracted by the profits and the ease to enter the industry.
The threat of such competitors has shaped a competitive structure for H&M which has created a greater competitive environment for the existing influencers and competitors who impact the ability of the firm to achieve its profitability.
2.2.3 Threats of substitutes
H&M faces the threat of substitute’s strategic management issue which is high. Accordingly, the issue threatens H&M company since many companies have emerged and are likely to develop substitute products in order to have a competitive advantage which increases the level of competition. Besides, the sales of the H&M company are also affected since their targeted clientele may opt to buy the substitutes products which may cost at a lower price (Girrado, 2014). For H&M threat of new substitutes has been contributed by other retailing stores such as Zara which offer substitute services and products as to H&M. The presence of this company in the industry has increased competition for the company which means the competitive environment has had a great effect on the operations and profitability of the company.
2.2.4 The Competitive rivalry
As deduced by Kapoor and Khanna (2016), the H&M competitive rivalry is high. Competition rivalry has been intensively attributed by the many fashion players who have emerged. Competition has been posted by a number of companies such as Zara and Asos which have great influence and offer buyers a chance to make decisions on their consuming behaviour. Owing to the stiff competition in the retail stores quality was compromised since most substitutes were produced. However, H&M sustained its differentiation strategy in most of its stores despite the amicable competition.
2.2.5 The bargaining power of the suppliers
The bargaining power of the suppliers in the retail industry is low. In the retail industries, suppliers are the core participants in the supply of myriad products such as material, threads and any consumer product that can enhance production of fashionable appeals. As such, there are many suppliers providing the products hence a company can always switch to a different supply depending on their needs and demand. the H&M is currently in collaboration with a high-end designer such as Stella McCartney and Jimmy Choo which has helped the company to retain its brand image and keep up with the emerging trends
Principally, the PESTEL framework has been used to analyze the strategic management issues that have faced the H&M company.
Figure 3: PESTELframework
Source: West et al. (2010)
On the political approach, H&M company encounters the issue on the relocation of production facilities and imports and exports restrictions. Primarily, relocation of manufacturing has been a disputable issue since the company struggles to sustain its profit margin, declining cost and receiving incentives in order to locate its production in a particular area. Additionally, outsourcing is also highlighted as an intense issue for the H&M company since it increases the lead time (Gockeln, 2014). Typically, the number of days taken once the order is placed and when the product is available for sale is known as lead time. The increase in the lead time has an acute impact on the product optimization and the company’s productivity.
Statistically, it has been observed that the retail spending on apparel in 2011 was on approximate 1.18 trillion globally. Narrowing down to specific countries like the Asia Pacific, Western Europe, and North America it accounted for 30%, 34% and 22% of respective retail spending in the global market (Gockeln, 2014). Regarding the different market size, variance in population and the consumer behaviour is significantly reflected. Nonetheless, the current spending patterns have profoundly been affected by the current economic crisis thus creating downward pressure on the product price. In this light, the rise of disposable fashion has continuously been realized and has, in turn, affected the consumer spending which has dramatically declined without even factoring in the current trend in the market.
Notably, the social-cultural issue has also affected the H&M company since it targets a distinct clientele base which encompasses of young adults and youths both male and female. Owing to this, there is a rise of different regional preference since the customers are segregated in a distinct location (Gockeln, 2014). The difference of choice between markets and regions is mainly encountered because of the fragmentation of consumer into more precise niche group than before. This becomes a challenge to the H&M company trying to satisfy the preferences and needs of different clients in different niche group in various regions.
Technology evolution has unfolded advanced technics which have substantially been adopted by several companies to facilitate change and be up to date with the current trends in the market. In this concern, technology has significantly declined wastage and has enhanced better utilization of inventories (Gockeln, 2014). However, technology has probe threats to the H&M company since it has led to the rise of online shopping retailers from other emerging companies such as Amazon, Zalando and Asos and thus increasing the level of competition in the market. This has affected the company’s profit margin and the total sales as well since this company have managed to attract more fashion customers.
These are factors that have existed since H&M begun. These factors have become significant because of the increasing scarcity of the raw materials required as well as pollution which have influenced the targets of being a sustainable and ethical company. As one of the major fashion brands, the company is damaging the health of consumers and polluting the environment. Reports have indicated some toxins that are harmful to the people living near the company as well as the workers. Increased levels of textile waste and toxic chemicals, as well as water pollution, have increased social welfare issues due to the negative impacts on the environment.
Legal factors, in this case, have included advertising standards, health and safety, consumer laws and rights as well as equal opportunities. H&M has had legal complaints that include criminal trespass, racist ads and harm to New York city property rights. The company has been accused of having disrespected artist’s rights in their marketing campaign. The company has also been accused of violation of labour rights which have included low wages, and inefficient sick leave practices. The issues have influenced the ability of H&M to trade successfully.
3.0 Strategic option
The H&M company has to evaluate the appropriate most strategic option that will amicably have impacts on its profits and revenues. Moreover, the strategic option will also assist the company in curbing the strategic management issues like competition, decrease in sales and profit margin, and other internal and external issue. The two strategic option which is crucial for the H&M company entail the cost leadership and the differentiation strategy.
3.1 Cost leadership strategy
Conversely, cost leadership strategy entails a method which helps companies gain market share through the production of the least expensive products in the market and declining cost. In the present world, consumers are aware of their preferences and the products that will quite satisfy their needs in this modern business environment. In this light, for a company to be competitive and gain a competitive advantage over the others it has to use competitive pricing to differentiate itself in the market (Ju et al., 2015). Companies with leadership production cost are at an advantage since they provide products with a similar level of quality like their competitors but at a much lower price. In this context, the strategy will assist the H&M company in offering quality fashionable clothing to their clientele at a lower price. As discussed, it evident that technology has opened the path for many companies interested in the fashion industry (Ju et al., 2015). This has become more accessible through the integration of unique techniques that create room for customers to enjoy the online services from the comfort of their home. As such, this has unravelled the rise of new entrants in the market which is intense and threatening to the H&M company as its profit margin, and the sales are affected.
3.1.1Advantages of cost leadership strategy
• The cost leadership assists the company to gain a large market share and decline the threat of new entry into the market.
• It helps the company in the production of quality goods at a much lower price than its competitors hence increasing its market share.
3.1.2Disadvantages of cost leadership
• Through the use of cost leadership strategy, the company minimizes its advertisement cost and market research cost. This, however, gives rise to lack of innovativeness thus failing to attract customers who are stylish, and those who prefer new products with new features. This may affect its competitiveness in the market, and at the same, the company may lose its potential clients.
3.2 Differentiation strategy
According to the research, differentiation strategy is alluded to be a method of creating unique products of high value compared to the competitors. This is archived through enhancing the brand image, designing the product to be more attractive to the consumer and implementation of technology techniques in order to create unique features on the product (Das et al., 2007). Therefore H&M will ensure that the products and services are different and more attractive as compared to their competitors. This will improve in terms of functionality, support, durability and brand image in the market.
The H&M company has been faced with the issue of the threat of substitutes products from its competitors. Concerning this context, adopting the differentiation strategy will assist the H&M company to overcome the issue of the threat of substitute products. The company will be in a position of producing goods that are of high value compared to its competitors. This, in turn, will increase the total profits of the company thus increasing their market share. Moreover, once the H&M company implements the differentiation strategy, it will be enlightened on how to adopt the online website platform that is the e-commerce. A huge contributing factor for H&M will be differentiating their online stores from their competitors. This is by improving ease of access and more customer support services that will enable create a better perception in the mind of the users. The company should apply differentiation in the online shopping technology through creating a website the brand from any other.
3.2.1 Advantages of product differentiation strategy
• The differentiation strategy creates a good customer loyalty such that they can neither switch to other substitutes products since they have confidence in the company’s product. As such, the company’s sales increase significantly.
• Also, the company is less threatened by the increase in the price of the suppliers.
• Differentiation strategy helps the company in creating a unique product of high value and special features.
3.2.2 The disadvantage of product differentiation strategy
• Implementation of a differentiation strategy may be costly for the company
• There is a threat from the competitors since they may copy the company’s business method hence attracting their loyal customers this pausing worry and fear to the company.
• The company is likely to suffer loss as it tries to create a brand image which takes a long period to establish hence being at risk of changing the consumer taste and preferences.
In my opinion, I would recommend the H&M company to implement differentiation strategy. This because the company will create consumer loyalty for producing innovative products that are of quality and have unique features which attract the customers. As a fact, quality is always a central consideration that every customer demands therefore with the production of quality products the customers are more confident hence limiting their desire for buying substitute products. Again, the differentiation strategy helps in stabilizing the revenues and sales of the company since the customer’s demand for a quality product will high hence no losses to be incurred. Additionally, the cost leadership strategy is essential but compromises the quality of the products to be sold to the customers. This because it constitutes manufacturing of products and selling in the market at a much lower price than its competitors. Meaning that the company shall reduce the research and development cost and utilizes materials of low quality to ensure that the products are offered at a low price than its competitors. As a fact, this will affect the product innovativeness, and it will decline the product’s features. Typically, this will intensively affect the sales and profit of the company since the company will lose its potential and loyal clients.
4.0 Implementation of differentiation strategy
The company can become more competitive in the market once it scrupulously considers the integration of brand differentiation strategy to provide customers with unique products of high value in a cluttered market. This compels them to only buy from the company and not the competitors (Chang, 2016). Again, a company must ensure that its products are different from its competitors to decline threat of substitutes product. Besides, the company need to put into account the issue of the customer’s shopping styles in order to facilitate the e-commerce platform where they can easily access the products without going to their stores. It is important for the company to understand the online consuming habits in order to stay ahead of the competitive landscape and for efficient marketing and survival. In this plan, effective procedures for implementing a diligent differentiation strategy that uses distinctive tone voice and positioning shall be highlighted below.
Principally, for the company to stand out in the market, it may contrive new technology or unique tactics which are likely to provide brand differentiation. H&M should engage in e-commerce to facilitate online shopping because gone are the days that physical stiores were used to determine how relevant or good is a product. Having established e-presence is important and makes a company stand out and be desirable hence making it possible to cater for a large number of people through online shopping. Therefore, H&M innovation differentiation will include having a website that enhances usability with clear guidelines and helps consumers. This will bring a change of the customer shopping styles hence improving their online shopping experience in the H&M company. The online store should clearly define to the customer what they should engage with, making the consumers envision themselves with the products and services, defining the brand identity and personalizing the online storefront for effective e-commerce differentiation strategies. Through e-commerce, this the company shall diversify their online services and manage to sell their products even in the Alibaba’s Tmall e-commerce website in China. This technique will be able to introduce new features of the products regularly and ensure they are interesting and relevant (Burgelman et al., 2009). Additionally, the company should continuously reinvent innovation to attract more customers and lead in the market by delivering what is promised in order to enhance consumer satisfaction.
4.2 Pricing strategy
On price strategy, the H&M company may archive brand differentiation through offering a quality product at a high price to develop customer’s loyalty in high levels. Alternatively, in case a company intends to gain high market share it can opt to lower the cost of a product. However, this may be challenging for the company to sustain the low prices over time since other competitors might offer the same product at a much lower price. This may lead to a loss of potential customers as every individual is seeking to find better bargains that are pocket-friendly. Therefore, the H&M company should establish a standardized pricing strategy that will at the same meet the needs and preferences of the customer at a relative price (Irwin et al.,2011)
4.3Differentiation through product qualities
The H&M company need to consider its brand differentiation strategy in terms of how it is made, its performance and its appearance as well. Further, the company may differentiate its product in terms of various attributes by explaining if it works faster or cleans better. The aspect of durability can also be highlighted to explain on stronger tape and tougher boots. The company should keep up with the current market trends in fashion and style to attract more and form a strong emotional bond with the customers. This creates immense brand reputation making the customers more confidences hence not being attracted to the substitutes.
4.4 Customer service for differentiation
H&M company should use the differentiation strategy to provide extraordinary customer services. The online store should be improved to facilitate a complete in-store customer service to prevent the customers to still go for the bricks and mortar (physical stores). For instance, customers can be allowed to email the company and facilitate effective and quick response to the customers. It is also important to increase the staffing levels in order to ensure that there is enough staff to respond to the consumers. There should be detailed products pages in order to avoid the customers need to email and call. By offering detailed information on delivery time and costs, as well as general information about the products and services, will give the customers more confidence to purchase the item. This can be attained by establishing a firm personal contact with the client to create loyalty. Through this, the company maintains their product reliability every time which creates an excellent reputation for the company.
4.5 Brands driven by personality
The H&M company should ensure that personality inspires their brand by using unique language and imagery to be exceptional in the market which creates high brand recognition levels. Besides, as the company is implementing the differentiation strategy, it should factor in the human-like characteristics to make the product more distinctive, textured and desirable (Chang, 2016).
4.6 Brand proposition
The H&M company should develop a unique position through using effective positioning statement that reveals the brand, philosophy, outlook, and one that reflects what the clients aspire. This will help the company to archive brand differentiation successfully. The brand proposition will assist the H&M company in researching on individual socials interests, their values and their aspiration towards specific products (Wooldridge et al., 2007). This will help the company to create a strong customer loyalty and purchasing preferences through the provision of products that satisfies their preferences.
5.0 Resources needed
There are various resources required during the implementation of differentiation strategy in a company. The primary resources that are a necessity for the company during implementation entail, financial resources, intellectual property and the human resources (Huselid et al., 2011)
In essence, financial resources are the core requirement for the company that propels growth and development of the company through production of high valued products which are of good quality. In this regard, a company must have sufficient revenue to facilitate the development of new products, establish the online e-commerce website and support the company in doing more research and development project in order to be competitive (Huselid et al., 2011). The H&M company should establish a strong financial position which will contribute to the rise of its competitive advantage and rise of high opportunities.
5.2 Intellectual property
The H&M company requires intellectual property which encompasses of the proprietary process, trademarks and patent rights to assist the company in outdoing its competition in the market. The intellectual property will assist the company in adding value to the assets and make it easier to obtain the finances (Huselid et al., 2011). Further, the company will capture a strong market position once it has established cost-effective methods that facilitate the efficient production of goods compared to its competitors. As such, it will attract more customers and enhance brand recognition which gives a company a better competitive advantage.
5.3 Human resources
The H&M company will require skilled workforces who are competent and loyal. The employees should be well acquainted with the information that they give the customer in order to ensure that it’s not misleading. Naturally, a company requires skilled works to steers the growth and development of quality products (Becker et al., 2006).
6.0 Barriers and challenges when implementing a differentiation strategy
In the course of implementing the differentiation strategies, there are various challenges and barriers encountered as well. As much as the company wants to rise above its competitors it is by Kedia et al., (2002) that the company implement online stores that which will change the consumer online shopping style. With the new website, the H&M shall be competitive and diversify its services in Chinese e-commerce platform. However, the most substantial barrier is to keep the online consumers from purchasing other online products. This is because the competitors have also engaged in e-commerce due to the growth of online shopping and consumer trends. Therefore, H&M has incurred marketing costs as well as research and development costs to improve their quality of products as well as enhancing quality customer services extremely unpopular with their competitors.
Conclusively, the H&M company faces the issue of competition, the online shopping style, threats from new entrants, threats of substitutes products and the underlying economic problems which arise due to change in currencies technology and culture. In this light, the company can only sacrum the existing challenges through the implementation of differentiation strategy. Evidently, the differentiation strategy assists in the production of unique products of high value and interesting features which comparatively attracts intense clientele base thus eliminating the issue of competition. More so, by implementing the differentiation strategy, the company shall be enlightened on how to effectively utilize the e-commerce online website to improve the customers shopping styles and experience. As such the company shall unleash many untapped opportunities such as making their products accessible in the midland China hence increasing their profits.
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