United colors of Benetton. A company of colors and controversies

Table of Contents

I. Executive Summary

II. Introduction

III. External Analysis
A. Customer Analysis
B. Competitor Analysis
C. Market Analysis
D. Technology Analysis
E. Socio-cultural Analysis
F. Political-legal Analysis
G. Economic Analysis

IV. Internal Analysis
A. SWOT Analysis
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
B. Portfolio Analysis

V. Strategies and Implementation of Strategies
A. Marketing Mix Strategies
1. Pricing Strategies
2. Product Strategies
3. Promotion Strategies
4. Distribution Strategies
B. Growth Strategies
1. Penetration Strategies
2. Product-market expansion Strategies
3. Vertical integration Strategies
C. Differentiation
D. Diversification
E. Global Strategy

VI. Recommendation and Conclusion

VII. References

I. Executive Summary

The United Colors of Benetton: a company of colors and controversies. Offering the world an insight to fashion, as well as, human equality and world issues, Benetton gives us stylish clothing and innovative promotion. While trying to capture an audience favoring Italian character in style and design, the company additionally desires to present the world with contentious campaigns to awaken thoughts and debates. These controversies are jeopardizing Benetton’s position in the industry, and its reputation of being trendily unique and committing to world harmony.

II. Introduction

The United Colors of Benetton (Benetton), an Italian based company, is primarily focusing its business on clothing and controversial advertising. Presented all over the world, the company is available to young and old in combined colors and stylish fashion.

In the following pages a complete internal and external analysis of the company will be explained, as well as, a description of the company’s overall standing. The alternatives as seen are described to include the advantages and drawbacks of each alternative. Conclusively, a recommendation based upon all of the findings outlined is prescribed.

III. External Analysis

A. Customer Analysis

Benetton sells women’s and men’s apparel, accessories, shoes and fragrances to clients that are mostly fashion-oriented women and men between the ages of twenty to thirty-five.

Color’s is published in three editions and four languages, with a website that is both popular and praised by critics. The magazine is bi-monthly and reaches young people all over the world.

Benetton is an interesting trans-national corporation that truly has a social conscience and tries to employ models who look like the human race--even featuring gay models who are HIV positive.

B. Competitor Analysis

The clothing industry is a very broad industry selling products ranging from pants and shirts to accessories. It is affected by the latest trends in design, models, colors and styles, and also by consumer preference. There are several similar companies selling comparable products, so competition is incredibly fierce. Benetton does not outsource any of its procedures, but is in charge of design, production and distribution. It is therefore difficult to compare the company with other organizations in the same industry since competitors can be smaller and concentrate on only one aspect of the commercial chain. Consequently, Benetton’s competitors were selected by viewing the www.hoovers.com web site. According to the organizations available here offering approximately the same products as Benetton the main competitors are Industria de Diseno Textil (Inditex), GAP and Hennes and Mauritz (H&M). It is assumed that these three organizations are Benetton’s closest competitors due to the fact that they target the same consumer segment. According to the CBS Market Watch the competitors are not all present in exactly the same industry due to the fact that Benetton and Inditex actually produce clothing and fabrics, design and retail fashion products, while GAP only retails, and H&M retails and designs its goods.

It is assumed that the exact industry is irrelevant because all companies still aim for the same target market and therefore compose a threat to Benetton. Furthermore, all four organizations originated from four different countries, but this is also looked at as unimportant because they are a global company with global customers.

1. Inditex

Inditex is the closest competitor to Benetton because it is present on the stock market and it also designs and retails its fashion. It is a global company with more than 1,300 shops in almost 40 countries. It is most popular in Europe, just like Benetton, perhaps due to its origin: Spain. Inditex introduces new products by answering to popular trends presented by customers. The company has a larger market share than Benetton in the clothing and textile industry with sixty-eight percent compared to Benetton’s twelve percent (CBS Market Watch). This could be as a result of Inditex’s six banners compared to Benetton’s five, and also because of the fact that Benetton has been having several difficulties selling its products after its highly noticeable marketing campaigns were banned in several countries. Furthermore, Inditex is mentioned as number three hundred and ninety on the FT Global 500; the world’s largest companies list, while Benetton is not on this list (Financial Times).

2. GAP

GAP is an American-based company with almost 4,250 stores worldwide. GAP only retails its products, but the company is a strong competitor to Benetton. GAP sells basic, causal styles for men, women and children. The company has three chains and all clothes are private-labeled merchandise made specifically for GAP. GAP is on the Fortune 500 as number one hundred and thirty, and also on the FT Global 500 as number three hundred and forty-eight (Hoovers).

3. H&M

H&M is a fashion company from Sweden. It has about 844 stores in 14 countries and is in the midst of developing further. H&M designs its clothes by using 90 different designers who create collections for women, men, teenagers and children. H&M’s intention is to uphold a high fashion content which is up-to-date within design concepts and at the forefront of the latest international trends (hm.com). The organization also sells underwear, sportswear, accessories and cosmetics.

The competitive structure of the clothing industry can be explained as very assorted and complicated to plot. Organizations do not segment by age as much as by lifestyle or theme; for example, designer accessories, formal wear and casual wear. There are several channels of distribution available, such as catalogue retailing, department stores and outlets, as well as the typical brand store.

The industry can be viewed as fairly fragmented and there is a large amount of different chains available on the market. The industry is therefore highly competitive. Barriers to entry are low, and chains can expand quickly and grow large in size and popularity. Present companies have to struggle with new competition often and intensely. Companies are very dependent on customer preference and reputation can fluctuate distinctly due to modifications in, for example, fashion and image (Institute for Retail Studies).

C. Market Analysis

Today, the Benetton Group is present in 120 countries around the world. Its core business is clothing: a group with a strong Italian character whose fashion, design proficiency and enthusiasm are clearly seen in the United Colors of Benetton and the more style-orientated Sisley brands; in The Hip Site, the brand for teenagers; and in the sportswear brands, Playlife and Killer Loop. Benetton’s sports goods brand, Prince (tennis racquets, footwear & apparel), has a 30 percent global market share, and Rollerblade In-line skates also has a 30 percent global market share. Additionally, NordicaSkis (ski boots & mountain wear) has a 28 percent global market share. Ektelon Racquetball is the market leader. The Group produces over 100 million garments every year over 90 percent of those are in Europe. Its retail network of 5000 stores around the globe is progressively more focused on large floor-space points of sale presenting high-quality customer services and additionally generating a total turnover of two billion euros net, of retail sales.

Benetton has experienced tremendous growth and above-average profitability over the years, and what makes it especially striking is the fact that it has been achieved in mature industry apparel in an apparently hostile environment – labor-expensive and unionized northern Italy. Benetton’s financial reports from 1996 to 2002 show growth and increasing revenue except in 2002; total sales in 2002 amounted to approximately 2.0 billion euro, down from 2.1 billion in 2001. The main reason for this loss is that the program for the disposal of the sports equipment business resulted in the steep decrease in turnover in the sports sectors. It hurt the Group’s overall performance.

Moreover, Benetton’s communication campaigns played an important role in establishing its brand identity. On the other hand, they alienated the target market and Benetton retailers. For example, in Germany, Benetton’s second-largest market, partly because of the controversial print-media campaign, awareness of Benetton had significantly increased relative to other clothing brands, in part due to the controversial print-media campaign; however, measures of likeability relative to competing brands decreased. Also in 1995, several of the 600 German retailers that used to carry the Benetton line banded together in a boycott. Thus, the Group attributed much of its 1994 sales drop to the campaign. Additionally, the company partnered with Sears for a more affordable line of Benetton USA, then lost the contract when Benetton planned to release an ad campaign with death-row inmates. Thus, Benetton lost its place in the U.S. market, as the company became better known for its infamous P.R. than its clothes. The understated image of the Gap replaced the aggressive social advertising of Benetton in clothing campaigns as the 90’s came to a close, but Benetton is Europe’s largest clothing manufacturer and the worlds largest consumer of wool in the garment sector. As a result, the market share in the United States has gradually decreased, even in the European area. In contrast, the Benetton’s market share in Asia area has been increasing, for example in, Japan, Korea, and China due to being the Group’s core targets. In 2000, the revenues by geographical area showed European (74.3%), the Amercias (12.3%), and Rest of the world (13.4%). However, Benetton’s 2002 revenues by geographical area showed a different trend as European (68.9%), the Americas (9.6%), Asia (8.9%), and other (12.6%).

D. Technology Analysis

Using communication and information technologies is a very effective strategy for Benetton. The company is referred to as quick response, in which manufacturing, warehousing, sales and retailers are linked together. In this strategy, a Benetton retailer reorders a product through a direct link with Benetton’s mainframe computer in Italy. Due to the strategy, the company is capable of shipping a new order in only four weeks, and that is several weeks faster than most of its competitors.

Furthermore, the company is using integrated information systems; therefore, the company checks daily sales data from its own boutiques, which is integrated with CAD and CIM. Also, global EDI network links agents with production and inventory information. The EDI is ordering transmission to headquarters, and it links with air carriers, as well.

Recently, Benetton planned to weave radio frequency ID (“RFID”) chips into its garments to track its clothes worldwide. The chips would help the Italian clothing manufacturer cut costs by eliminating the need for workers to take inventory by manually scanning individual items of clothing. It would also protect the garments against theft. However, the RFID chips could pose significant risks to customers privacy because they would allow anyone with an RFID receiver to locate customers wearing Benetton clothes, including companies that want to sell them their products. Therefore, consumers would be bombarded with intrusive advertising because a history of customers’ purchases and their identities would be linked with the tag even after they leave the store. It would weave the technology into the collar tags of clothes that cost at least 15 dollars to keep track of them as they ship.

The RFID technology offers Benetton a number of advantages, not the least of which is its ease of use. Unlike a bar-code scanner, which must be held directly in front of the item being scanned, employees with RFID receivers or shelves with the technology can scan entire boxes of items from up to five feet away. The technology would thus require fewer people to scan clothing items for inventory purposes.

RFID technology also provides business managers easily with store detailed information about customers buying habits that could spur further sales. The tagging system may also save the company money by reducing theft, because the RFID tags can be programmed to set off an alarm if someone leaves a store without paying for an item. Similarly, the technology would make it harder for merchants to sell stolen or bootlegged versions of clothing in flea markets and other venues; a retailer who spots an item that she suspects is either stolen or illegally manufactured could check its origin using the tagging system. It may also help customers find the clothes they want in the store and even make it easier for them to return items without a receipt because the store would have recorded the RFID tag.

E. Socio-Cultural Analysis

From a socio-cultural perspective, fashion is a cultural and societal issue that varies from culture to culture and from country to country. It also varies within a specific culture with time. A company like Benetton must monitor trends for new opportunities or threats because as the fashion trends change, so does the customer base, and the ethnic/multicultural consumer is the fastest growing segment.

Clothing, however, is a visual representation, which fulfills the desire of each individual who wants to be noticed in a society in a particular way. Because of this, the apparel industry will never falter or suffer abrupt changes, but will adapt and change due to various conditions. Linked to this phenomenon is the aspiration of different types of individuals with different desires to either have the newest or most significant types of apparel, particularly in the industrialized nations. This requires participants in the industry to offer the newest styles of clothing in order to retain market share.

Despite this overall socio-cultural trend, there is some indication that majority of consumers are not purchasing as rapidly as they have in the past due to the fact that the economy is recovering. Markets for lower-end brands continue to exist, however, in developing nations where individuals cannot afford the cost of newer styles.

As a result, the fashion industry is an industry where the socio-cultural environment is of prime importance. The firms in this industry above all, must bring out new designs and keep good track of fashion developments and adapt to different conditions such as culture and the economy.

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