Current and future strategies

1. EXECUTIVE SUMMARY

Purpose:

The purpose of this report is to understand and analyse the current and future strategies of NEXT in terms of its market in the United Kingdom. This report also considers the tactics to reach potential markets and expand into newer market segments.

Approach:

In order to conduct a comprehensive study of the company, the factors taken into account are an internal and external analysis, the generic strategies used by NEXT and a thorough understanding of the 4 Ps, PLC, BGM and Ansoffs Matrix has been done in correlation with the future and currents strategies.

Findings:

Next is the second largest clothing retailer in the UK operating through 500 NEXT retail stores within UK and Eire with over two million active customers. Next aims to provide high quality and beautifully designed products to their customers. From the internal and external analysis of the market strategy of Next, results conclude that next has been a mid market retailer for nearly two decades. It has achieved huge amount of success in the internet and online shopping environment and have been able to cope to with the recent recession within UK and globally.

Limitations:

Next has suffered sales in the last year due to the recession in the UK and has been moving from a low price retailer to a design and quality product provider. In achieving this aim of providing high quality and designed products it has suffered loss in the UK in sales and growth. It also needs to be aware of the risks of increasing their shop sizes, as the store space to sales growth ratio is very poor. New out of town stores has not been great success and has only added additional costs.

2. INTRODUCTION

The only way to attain the successes the company has experienced in the past few years in terms of growth of sales and profits is to see what opportunities lay on the horizon. The Marketing Department of Next Plc has performed a series of internal and external scans throughout the company in order to identify these opportunities.

This report contains an analysis performed on the structure, culture, and the micro and macro environment of NEXT PLC. The outcomes are presented in the form of a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the company. A PEST analysis focuses on the environment that the company now is in (Political, Economic, Social and Technological) and a scan based on the Five Forces Model of Michael Porter. Furthermore, there is the presentation of mix map model, which analysis the 4 P’s (Product, Price, Promotion and Place) and product life cycle, Boston Group Matrix, Ansoff’s Matrix of NEXT. An executive summary has been constructed to provide the company vision and a sense of direction with the help of data gathered by the Marketing Department. The above mentioned activities are performed In order to discuss and evaluate the current marketing strategy of NEXT PLC and to recommend an appropriate strategy for the near future to expedite further growth.

2.1 MISSION ANALYSIS

NEXT is a retailer of clothing, footwear, accessories and home products. Next clothes are designed by in-house design team to offer consistency of style, quality and value for money with a contemporary fashion edge. The company operates through five reportable business segments namely: Next retail, Next directory, Ventura, Next sourcing and other. NEXT PLC aim to provide “Exciting, Beautifully designed, Excellent quality clothing and home ware that reflects the aspirations and means of our customers” (Nextplc, 2009) and keep providing quality products for their target markets.

In lay-mans terms, a mission statement describes what business the firm is in (Thompson and Martin, 2005). Objectives describe the kind of results the business seeks to achieve while the strategies simplify the way to achieve the desired objectives.

Market can be defined as location where the buying and selling of merchandise takes place and marketing can be defined as the process of identifying a target market and developing appropriate strategies for product development, pricing, promotion and distribution (Burns, 2002). NEXT also aims to respond to the particular needs of their customers through the package of measures, which they believe support all customers including those with additional needs. NEXT PLC operates through 500 NEXT retail stores within UK and Eire, Next directory, a direct catalogue and transactional website with over two million active customers and NEXT franchise which includes around 170 stores worldwide. Online shopping was introduced in 1999 and was first in home shopping in the UK.

Like other retailers, NEXT has also suffered sales decline due to the recession but aim to carefully manage costs, whilst maintaining and retaining the talent and skills to ensure a positive position within market and emerge stronger than before. NEXT PLC also believes in the importance of maintaining healthy relationship with communities in which they operate and also work with charities to ensure their part in public welfare. NEXT is positioned firmly in the middle mainstream fashion market, targeting 25-45 year olds (upper, middle and lower middle class consumers) who are fashion followers. Easey (2009) maintained that fashion marketing is the application of a range of techniques and a business philosophy that centres upon the customer and potential customer clothing and clothing-related products and services in order to meet the long-term goals of the organisation. In recent years NEXT has been criticised about their marketing methods and has not been seen as a retail business with up to date marketing strategy.

The word ‘strategy’ is used frequently and loosely, and is often no more than management jargon. There is obviously a deeper and more practical meaning to it. Strategy is about how an organization sets about getting to where it wants to get – it is about setting, pursuing and achieving its mission and objectives (Thompson and Martin, 2005). Knowles (1996) maintains that applying the concept of strategy to an organization implies that the organizations managers try to allocate resources, establish policies and procedures, assign responsibilities and give direction to the organization. Strategic planning is a precise discipline and a process designed to fully utilize the collective expertise of the decision makers through a facilitated process which results in a strategic plan.

In the following paragraphs, current in depth marketing strategy of NEXT PLC will be thoroughly discussed.

3.SITUATIONAL ANALYSIS

As discussed earlier, success of an organisation in today’s competitive world depends on to a large extent on strategy formulation and implementation. An analysis of the internal and external environments provides a look in towards building and developing current and future strategies. Situational analysis is a planning step which helps us examines the current situation of our organization and its external environment so that we can identify and agree on major issues which affect how we plan for the future. SWOT Analysis is a strategic planning method used to evaluate a firm’s strengths, weaknesses, opportunities and threats involved in a project or business venture. Strengths and weaknesses are considered to be internal factors of the organisation while opportunities and threats are considered to be external factors as opportunities or threats lie in the external environment. This analysis is called as SWOT analysis (Stahl and Grisby, 1997). In order for a firm to carry out SWOT analysis it needs careful and critical examination of these various internal and external factors which are often unique to an organisation depending on the type of business. After a SWOT analysis has been performed the managers are able to formulate a strategic plan which comprises of objectives and subsequent strategies.

Next always seeks to give the price, value and quality products and services, the upper hand when turning towards customers. Next aims to provide an inclusive high level of service to all customers, whether they shop in high street, shopping centre or retail park stores, the Next Directory, or online through our website. This can also be seen in the way the company sees the importance of its personnel in relation to its customers. NEXT PLC needs to look into the future for improving the customer care by streamlining activities. It also wants to continue the same success pathway it has had in the last 5 years which is demonstrated by (Verdict, 2009).

3.1 INTERNAL ANALYSIS

Internal factors are those factors which influence the strengths and weaknesses of an organisation. These strengths are internal to the organisation, its strategies and its position in relation with their competitors (Mercer, 1999). Given below is an internal analysis of Next plc.

3.1.1 Structure

In terms of structure, Next plc operate on a centralised system. Their target market is 25-45 year olds (Next, 2009). The company logo ‘next’ in lower case signifies a different approach, more trendy.

There are3 main channels of distribution used by next to ensure their products reach the desired customers:

1. Next has around 500 stores in the UK which acts as its main point of sale. (Next plc, 2009).
2. Next directory which is an online web portal which allows customers to buy products through the web site. There are almost 2 million active next directory customers (Verdict, 2009).
3. Around 170 international stores make up the third channel of distribution.

3.1.2Culture

Jackson and Shaw (2009) define culture as the attitudes, values, standards and behaviours of a group that are often defined by nationality. According to Vignali et al, (2008) culture is made up of both abstract elements such as values and ethics, and material components such as cars and foods, which allow us to describe, evaluate and differentiate cultures.

Approximately 30% of the clothing bought in the UK is from M&S, Arcadia and Next (Jackson and Shaw, 2009). They further state that during 2006 Next lost their market dominance. This means the culture affects consumer behaviour to a great deal.

However Next plc, was one of the first to develop and adopt an internet based shopping branch as a high street retailer (Next plc, 2009). Next operates on a role culture concept with which they have a principal board committee which includes the audit committee, remuneration committee and a nomination committee which work on their own in the company (Next plc, 2009).

3.1.2.1Cultural Web

Stories: These are the past events and what people talked about inside and outside the company (Mindtool, 2009).

Rituals & Routines: The daily behaviour and actions of people that signal acceptable behaviour (Mindtool, 2009).

Symbols: These are the visual representations of the company (Mindtool, 2009).

Organizational Structure: This includes both the structure defined by the organization chart, and the unwritten lines of power and influence (Mindtool, 2009).

Control Systems: The ways that the organization is controlled (Mindtool, 2009).

Power Structures: The pockets of real power in the company (Mindtool, 2009).

3.1.3Value Chain – core competencies

Value chain is a framework for identifying where value is added and costs are incurred within a company. It embraces the key functions and activities within a company or organisation such as NEXT (Thompson and Martin, 2005). Core competencies: NEXT make use of an Internet based home shopping and has also established a good brand posture with individual style, beautiful design, excellent quality and affordable price (Next, 2009). NEXT stores are specious and they also make use of standalone lime stores.

3.2 EXTERNAL ANALYSIS

The external factors may be threats to one organisation while offering opportunities to another such as technological change, legislation, socio-cultural changes, etc. It can also include changes in the market place or competitive position (Mercer, 1999).

3.2.1 Forces Influencing the Market

Porter’s five forces is a model that helps marketers to analyse the competitive environment by identifying five major forces that continually impacts on organisations. These forces are:

1. Bargaining power of suppliers
2. Bargaining power of consumers
3. Threat of entry into the market by new entrants
4. Threat of substitutes into the market
5. Level of competitive rivalry amongst existing firms (Porter, 1980 cited by Jackson and Shaw, 2009)

• The bargaining power of our suppliers is very low and the prime problem exists in achieving the quality we ask from our suppliers. Most suppliers only deliver into this market, yet can also change to other markets (professional clothing) that are less profitable and the level of competition is great. With the availability of many suppliers, this force acts positively but can affect the quality aspect of NEXT brand name if suppliers are changed on regular basis.
• For the consumer bargaining power, there is not much leverage from their account: their money spent on clothing per person is not substantial enough when compared with, our total sales and their total spending budget (Next annual report, 2008). As, per person spending power is not huge it does not provide customers any bargaining power. NEXT can also consider this force as positive but needs to be aware of the customer demands in order to maintain this positive nature of the force.
• The threat of new entrants is rather low, yet, as said before, the German ESPRIT company is trying to enter the market. This is an exemption, because ESPRIT has a lot of resources that make this possible as well as a lot of experience. In words of product differentiation they are in the league of Levi’s and others (Verdict, 2009). These brands have extra benefits: Image and superior quality. This force acts as a positive force, as the threat of new entrants is low for NEXT plc but caution needs to be taken in order to maintain this force as positive.
• The products that can reduce our sales in the form of substitute products or services are not there, however a ‘threat’ of Internet portals and other forms of home shopping does exist. This is not a severe threat for the company as it already is active in this channel of selling. The discount retailing of A-brands e.g. Levi’s in outlets through parallel imports can be a problem. New internet portals and other home shopping forms are the only form of substitution threat to NEXT, but as they have been achieving a huge amount of success with NEXT directory and Ventura (Nextplc, 2009), this force does prove to be positive for them.
• There is some rivalry in the ranks of the market, for there are declining sales due to a decreasing market. In order to attain customer base, companies have increased their discounts and that leads to the destruction of the market. The main cause for this is the fact that people do not want to pay the full price amount of the products and companies have to suffice with lower profit margins. NEXT is the second largest clothing retailer in UK but has also suffered a decrease in sales. While most of its competitors struggled from the declining market Next manage to increase its market share and during the present recession they maintain their stand in the market (scribd, 2009)

3.2.2 Political, Economic, Social and Technological (PEST) analysis:

All organisations operate in market places that are affected by forces outside their control ( Jackson and Shaw, 2009, pp 300).Factors considered within the macro environment affect not only the company but all the other members of its micro environment, namely its suppliers, consumers, etc ( Easey, 1995). An analysis of the external factors that influence the firm is known as the PEST analysis i.e. Political, Economic, Social and Technological.

Political

Politics will affect both the producer and the consumer in various ways (Bohdanowicz and Clamp, 1994). A stable political surrounding is the basis for long-term decisions. The United Kingdom, as a Member State of the European Union, fulfils this prerequisite. The government has to act within a definite political framework to achieve the conditions of the European Union and this guarantees NEXT PLC a higher scope of economic actions.

Another advantage of the European Union is the open transfer of goods. This makes it easier for NEXT to sell their products in the different European countries. There are no trade barriers that aggravate sales and it also provides as a means of direct form of participation within the foreign markets (Hines and Bruce, 2001).

Economic

Vignali et. al, (2008), express that economic trends are extremely important for the business and that they depend to a great extent on the governments’ politics. Investments in Europe for NEXT PLC are very interesting. The British currency nowadays is exceedingly strong (ex., 2009). This is due to the independence of the British pound to the Euro and has several effects. First, foreign investments for NEXT are relatively inexpensive, and second, it is costly for outside firms to establish in the United Kingdom. The effects of exchange rates also need to be monitored closely. The devaluation of the sterling in 1992 led to a rise in the cost of imports to UK while making manufactured items more competitive. However, many countries are reluctant to engage in trade because of these reasons. In the face of a truly difficult trading environment it is a case of survival of the fittest. Being good is not good enough, retailers have to be exceptional and stand out from the crowd. (Verdict 2008). Chief executive of Next states “The outlook for the consumer economy remains challenging and as we have said before, the first half will be particularly tough” (Wilson, 2009)

Social

Changes in lifestyle and opinions influence the demand and the way of selling products (Vignali et. al, 2008, pp. 364). Key Note (2009) estimates that in the year 2036 more than 64.9 million people will be living there. This statement would mean two possibilities. This means a lot of new customers for NEXT PLC but the age of the population is increasing.

On the other hand, the social structure has changed dramatically. The progress in medical service and the self-awareness of living leads to increasing life expectancy. Following development of sex education and rising numbers of career women, the birth rate has dropped. These reasons are responsible for declining figures in the NEXT 20 to 40 year old target group.

Bohdanowicz and Clamp, (1994) analyse that young people no longer feel the pressure to be married or have children, and therefore many are living a single life or are cohabiting.

Technological

As in all areas of industry new technology is making great inroads to improve quality of life and increase speed and quality of manufacture (Easey, 1995).The age of Internet and the reception of new media reveal a lot of potential opportunities for NEXT to boost profit. Some companies in the United States already offer online-orders where the customer can exactly define his wishes and measurements, and send it to the place of production. 48 hours later he receives his package. Using this method the companies can react instantly to changes in behaviors. Social networking site facebook also provides as a means of information and education and also helps in advertising for NEXT PLC (Facebook, 2009). Some new entrants in UK market such as Zara use latest technology body scanners and follows fast fashion which is contrasting to NEXT.

4. SWOT

5. GENERIC STRATEGIES

According to Kotler 2004, strategy is the roadmap for achieving the envisaged goals. The strategic decision made by a commercial organisation is concerned with establishing the basis upon which it intends to compete, develop and sustain a competitive advantage and outperform competitors.

Porter defined strategy as creation of a unique and valuable position involving different set of activities.

Strategy can be formulated into 3 generic types –

Overall cost leadership –

Here a business aims at delivering its products at the lowest prices in the market and win a large market share. Such businesses require being good at engineering, purchasing, manufacturing and distribution. A disadvantage of this strategy is that some other company will eventually emerge with still lower costs. Brands may be able to achieve cost leadership at category level if they have sufficient market share (Jackson and Shaw, 2009).

Focus-

Here a firm concentrates on one or more narrow market segments. It first identifies such a segment and then pursues either cost leadership or differentiation in them.

Differentiation-

Here a business aims at achieving superior performance in an important customer area valued by a large chunk of the market. It could strive to be the service leader, the quality leader, the style leader or technology leader. Differentiation of one company from another is extremely important due to the ever changing customer demands (Oelkars, 2004).It is also considered as strategy based upon being different from the competition through a range of factors such as design, style, image, trend, product quality etc (Jackson and Shaw, 2009).

NEXT prides in offering consistency of style, quality and value for money with a contemporary fashion edge for their target market. NEXT marketing departments have been taking a differentiation approach which has helped them achieve superiority above their competitors. NEXT has differentiated their products from their competitors on the basis of above qualities such as style, design, quality and value for money. However, in this ever changing fashion industry nothing can be permanent. On the basis of porters five forces discussed above NEXT have all the forces in their favour but there are few issues which they need to consider in keeping these forces on the positive side. NEXT needs to be aware of the risks of changing suppliers in case of conflict as new suppliers may provide good products with change in quality which can easily damage the brand name. Due to global recession, textile firms in Mauritius that supply Europe’s biggest high-street stores are looking forward to tough 2009. With 10% decrease in sales, these stores fight among themselves to achieve better prices, which results in middle market stores to suffer like NEXT (Scribd, 2009). Only a small amount of internet portals threat has emerged for NEXT but their Directory has been a success and continues to do so (Verdict, 2009).

6. MIX MAP MODEL

6.1 MARKETING 4 P’S

The marketing mix consists of 4 P’s that are product, price, promotion and place. Product and Price are the product related elements where, price can also be consider as an element of its own. The other two are parts of the delivery system which is about delivering the physical product and the sales message (Mercer, 1999).

Product:

What business offers customers to satisfy their needs e.g. Quality. According to the mission statement of NEXT, their focus is providing high quality and beautifully designed product for their customers. For this reason maintaining and improving their quality and design of their products is very important for NEXT (nextplc, 2009).

Price:

Amount customers are ready to pay for products e.g. discounts. NEXT has been one of the known retailers to provide huge discounts on festive occasions, with discounts upto 70% on many products. It also provides special discounts for taller and plus-size customers (next, 2009). Being a mid-market retailer, in order to maintain its competitiveness it is very important for NEXT to provide special discounts schemes and offers during the festive seasons. NEXT also relies on linked selling, one of the biggest areas of sales. For example, it recommends fashion accessories to customers buying clothing online (next, 2009).

Place:

involves getting the product to the customers e.g. warehouse. Location of retail stores and shops has always been considered as the prime method to increase sales and growth. NEXT has always been one of the high street retail stores. It also has many different store types, eg flagship sores, factory outlets (nextplc, 2009). For this reason it is really important to have different location for customers to choose from.

Promotion:

It includes ways that encourage customers to buy a product e.g. magazines (Oelkers, 2004). NEXT hugely promotes a great deal of its products through magazines e.g Vogue and also produce great deal of discounts in store and on online shopping. It recently plans to introduce extra 16 billion pounds in advertising its products and online sales records 530 million pounds (Mintel, 2009).

6.2PRODUCT LIFE CYCLE

According to Jackson and Shaw 2009, as with all types of product, fashion follows cycles and products follow the Product Life Cycle. In a broader sense, no product can go on selling forever. Once a product has been introduced into the market and accepted by consumers, it goes through a phase of growth, maturity and decline until it becomes obsolete.

Stages of a product life cycle:

Design Development Stage:

This stage is undertaken ahead of the product launch. Design development costs create negative profitability as the sales at this stage are zero (Jackson and Shaw, 2009).

Introduction: Introduction is a period of slow sales growth as the product is introduced in the market. Profits are non existent at this stage because of the heavy expenses done for the product introduction (Kotler, 2004).

Growth:

This is a period of rapid market acceptance and substantial profit improvement.

Maturity:

This is the period of slowdown in the sales growth because the product has achieved acceptance by most potential buyers. Profits decline or stabilize.

Decline:

Sales show a downward drift and profits erode.

Although the PLC is an accepted underpinning of all marketing theory and practice, Jackson and Shaw 2009, cite the major problem for the fashion marketer to grapple with is the fact that the actual position of a fashion product on the cycle at any point in time is hard to define accurately. Hence an accurate mathematical model of the PLC is impossible.

PLC is an important issue for NEXT as it provides growth for the company and has highest operating profit margin amongst its competitors (Verdict, 2009). It also has a increase in store size by 50% from 2004-2008 (Verdict, 2009). Therefore Next is positioned in growth stage of PLC with signs of improvement.

6.3BOSTON GROUP MATRIX

As a visual tool for managing portfolios, the Boston Consultancy Group has developed a matrix known as BGM. The BGM offers a very useful map of the organisations products strength or weakness (Mercer, 1999). A typical BGM is given below.

The matrix is in a four box quadrant layout. The horizontal axis is expressed as the market share of the business compared to that of the market leader, whilst the vertical axis shows the average annual growths rate of the market that the business is operating in. The four quadrants are called stars, question marks, cash cows and dogs, which explain how the business stands relative to the market leader. Stars are market leaders in high growth markets. They are generally expensive in terms of promotional expenditure (Jackson and Shaw 2009). Generally businesses start off in the quadrant of question marks. Cash cows operate in a market where the growth rate is less than 10 percent. Dogs are a decline stage where a small share of limited and stagnant market.

Growth of NEXT has been an important issue for the company with a higher amount of concentration going towards increasing store size. Since 1997 the average store size has increase from 3500 sq. feet to 10,500 sq. feet (Verdict, 2009). In their mission statement Next aims to provide excellent quality and design for its customers and target younger market. Next chief executive admits 2009 being a tough year for NEXT. (nextplc, 2009). NEXT appears to be existing in between the dogs and question mark stage and needs to concentrate to achieve position to the other end of the BCG Matrix.

6.4 ANSOFF’S MATRIX

Ansoff’s Matrix provides four different growth strategies by considering ways to grow via existing products and new products, and in existing markets and new markets.

As seen in the diagram above; The Market Penetration strategy seeks to achieve growth with existing products in the current market segment, aiming to increase market share. Market Development strategy seeks to achieve growth by targeting existing products to new market segments. The Product Development strategy develops new products targeted to its existing market and the Diversification strategy helps the firm to diversify into new businesses by developing new products in new markets.

With increasing number of new retailers entering the market NEXT has achieved a great level of success in maintaining their market share and has also grown their business in new products such as directory and online shopping (Verdict, 2009). NEXT has always been an innovative retailer, as it was the first retailer to introduce internet shopping in 1999 (nextplc, 2009). Since then it has introduced many new products and Next Directory has been a great success.

7. RECOMMENDATION

On the above data analysis it is proven that NEXT has been one of the successful retailers in UK. It has grown immensely in the last decade both in regionally and internationally. Being the first clothing retailer to introduced online shopping; it has improved its market position in this area.

For a business to be successful in today’s competitive retail environment it has to go through the PLC many times. NEXT has been in the growth stage of PLC for many years but now needs to reach the maturity stage.

Using the mix map model it can be recommended that NEXT currently lies in growth stage and the following improvements can lead them to maturity level PLC. Increase in the percentage of new products by almost one forth is highly recommended for NEXT to achieve growth in the future. Whereas, it is recommended that they need to decrease their shop types by a marginal amount of 2%. They also need to decrease the amount of discounts by 30%. They have been introducing these huge discounts which create a negative image of company’s brand name and diminish the quality aspect of its products in customer mind. It is also recommended that NEXT should decrease their growth rate by 2% in order to achieve future success. A decrease of 11% in new market is also recommended. NEXT needs to decrease its magazine promotions and quality by 30% as it are cost saving and brand image has already been successfully established. Decreasing the quality can result in higher cost margin, eventually resulting higher profits.

Following these recommendations can help NEXT to achieve continues success in the future and can also help their marketing departments to create a new and improved marketing strategy.