Management-Report Karstadt

Table of contents

1 Company Profile

2 Customer Analysis

3 Analysis of the Organisation’s Marketing Strategy
3.1 Outline: Marketing Mix
3.2 STEP Analysis
3.3 SWOT Analysis

4 Analysis of a Marketing Weakness

5 Alternative Solutions to solve the Marketing Weakness

References

Appendix A Performance of the “true” over-the-counter retail

Appendix B Competition of Karstadt

1 Company Profile

KarstadtQuelle AG is one of European’s largest department store and mail-order groups (Plunkett Research, 2004). It consists of mainly four business segments: over-the-counter retail (OTC), mail order business, real estate and information and technology services (Datamonitor, 2004). Karstadt operates 180 department stores, 32 sport stores and 305 speciality stores. Its department stores such as Karstadt and KaDeWe represent around 50 percent of the German market share in this business (Plunkett Research, 2004).

Karstadt AG is a 100 percent subsidiary of KarstadtQuelle AG and the largest department store retailer in Germany. It includes 187 warehouses (Karstadt, Hertie, KaDeWe, Wertheim, Alsterhaus) and 32 sport departments (Karstadt Sport). 50.000 employees generated a turnover of 5.9 billion Euro (KarstadtQuelle AG, 2003).

2 Customer Analysis

This section identifies and describes the customers of the Karstadt AG using a consumer market segmentation approach suggested by Doyle (2002).

The KarstadtQuelle AG includes B2C as well as B2B operations. However, the Karstadt AG serves a mass consumer market. McKinsey (2003) states that daily 2.5 million citizens of Germany from all classes, all age groups, all social milieus shop in one of Karstadt’s department stores.

The wide product portfolio regarding the over-the-counter (OTC) sales corresponds to the previous statement. It includes fashion, personality, living, sports, multimedia, food & drink, and other (KarstadtQuelle, 2003). Consumer goods are defined as “goods that are sold to individuals for their own of their families’use” (Brassington and Pettitt, 2000). Karstadt AG is therefore operating in a consumer market compared to an organisational market (B2B). Actually McKinsey (2003) criticised that Karstadt AG does not know more that its potential customers are all German citizens. Nevertheless, the revenue of Karstadt AG is generated by the German market. Therefore, the German population plays an essential part for the further customer analysis.

Even there is a lack of information about Karstadt’s customers it is possible to characterise the customers in more detail using a geographic, demographic, psychographic and behavioural consumer market segmentation approach (Doyle, 2002).

According to McKinsey (2003), Karstadt serves all regions of Germany. In the annual report (2003), KarstadtQuelle AG says that it operates 189 warehouses under the brands Karstadt, Hertie, KaDeWe, Wertheim and Alsterhaus as well as 31 sport stores under the brand Karstadt in Germany. However, one has to distinguish between urban or rural areas as all stores are located in urban areas such as e.g. Düsseldorf, Berlin or Hamburg to attract more customers (ZAK, 2004). Most of them are located in the city centre especially in large cities in Germany (McKinsey, 2003).

Analysing the demographic characteristics of the Karstadt customers, one can conclude that all age groups are covered by the wide product range, reaching from men, women to children clothing. Regarding the product portfolio, the offered products are addressed to all sexes. People from all occupation are shopping in Karstadt from the teenager to business men over housewives etc. (McKinsey, 2003). And as many immigrant workers live in Germany, principally from Turkey, Yugoslavia and Greece (Datamonitor, 2003) many different religions and races are represented in the Karstadt stores. Because of the good reputation and attraction also many foreign customers are buying Karstadt products (Preuss, 2004).

The psychographic analysis includes e.g. the social class and the lifestyle types. The products offered by Karstadt are of average quality with average prices as it reflects the main target group: the middle class (Maximow, 2004). They cover nearly all kinds of life-styles (see product range).

The brand loyalty (behavioural aspect) of the Karstadt customers remains low (Kliger and Dembeck, 2001).

However, after the identification and description of the current customers it is essential to investigate if this segment will change in the future. Therefore, the development of the German population is analysed in the following.

In 2004, Germany has a population of 82.5 million people. For the next 50 years there will be significant changes in the size and the structure of its population. In the year 2050, every third German will be over 60 years old. This means in the next 50 years the ratio between young and old people will change which has to be reflected by the product portfolio in the future. Half of its population will be over 48 years old. Until 2013, the population will grow to 83 million inhabitants which means that the number of potential customers slightly increases. This level will decrease to 75 million people, representing the level of 1963 and could lead to over capacities on the market. However, this change already starts in the next two coming decades (Statistisches Bundesamt, 2004, see appendix A).

3 Analysis of the Organisation’s Marketing Strategy

In the following, the marketing strategy of Karstadt AG is discussed, using the Ansoff’s matrix, a STEP and a SWOT analysis.

Jobber (1998) defines the term “marketing strategy” as “the approach a firm takes to securing and retraining profitable relationships with its customer”. The C.E.O. of Karstadt, Mr Achenbach defines the organisations marketing strategy as following: “To offer their customers contemporary and innovative retail and service concepts relating to many areas of their lives.” And to give the “customers what they want”. This marketing strategy reflects the key elements of a good marketing strategy responding to Jobber (1998), Brassington and Pettitt (2000). Karstadt wants to provide the customer with “what they want” (KarstadtQuelle AG, 2003) which represents a timely consumer-focused strategy.

The company applies an over-the-counter (OTC) concept respectively “one-stop-shopping” concept to put the wishes of its customers at a centre, offering a wide broad and varied range of products under the roof of a single provider (KarstadtQuelle AG, 2003).

On the other hand, KarstadtQuelle AG applies a multi-channel strategy. It possesses the competitive advantage of being able to offer integrated sales channels for department stores, specialised stores, mail-order, television and e-commerce. Schramm-Klein (2003) argues that Karstadt significantly profits from the multi-channel strategy as it attracts more customers.

Karstadt’s growth strategy is to shift away from general retailing toward more specialised sectors such as fashion apparel and sports. Taking the Ansoff matrix into consideration, it can be stated that Karstadt develops its concepts (product development). The company also increases its mail-order business in foreign countries (market development, Plunkett Research, 2004). Its long-term strategy is the reorientation of KarstadtQuelle as a retail and service company (KarstadtQuelle, 2003) which has not been realised in 2004 (see marketing weakness chapter 4) as the company is applying a market penetration strategy.

3.1 Outline: Marketing Mix

In the early 60s, McCarthy (1968) defined the marketing mix, today, known as the “4 P's” of marketing: product, price, place and promotion. “4 P’s” are an integral part to develop a marketing strategy for a product (McDonald, 1998). Therefore, the report includes a short indication about the “4 P’s” of Karstadt. Retail expert Maximow (2004) sees Karstadt targeting a customer group who wants average products to average prices. In general, retail prices compared to other sectors only increased by 0.2 percent in 2003 (KarstadtQuelle AG, 2003). The product portfolio regarding the OTC sales includes fashion, personality, living, sports, multimedia and food & drink (KarstadtQuelle AG, 2003). These products are distributed through multi-channels (see section 3). In order to create a better customer relationship, make Karstadt the preferred shopping location, and to strengthen the brand name, a new brand campaign under the name “Besser Karstadt” has been launched in 2003 (KarstadtQuelle AG, 2004). This strategy is mainly short-term oriented. However, as discussed in chapter 4, this action will not solve the marketing weakness in the long-term.

3.2 STEP Analysis

As the marketing strategy of a company has to be based on internal as well as external influences, in the following the external environment is analysed. According to Brassington and Pettitt (2000), it is possible to group these influences “under four headings: sociocultural, technological, economical and political”, known by the acronym STEP.

The social environment includes the demographic structure of the market as well as “the way in which attitudes and opinions are being formed” (Brassington and Pettitt, 2000). Regarding the demographic structure of Germany, the national demographics, like these of the most western nations, have shifted to a more ageing population and declining birth rates (discussed in chapter 2). Further it is worthwhile to mention that the management of Karstadt is forecasting an increasing trend towards urbanisation which would be an advantage for the city-based warehouses. Gans (2000) agrees that from 1988 to 1994, the population of the large cities in West Germany increased by about 6 percent.

Determining the changing attitudes of the customers and the population, it is obvious that the buyer behaviour shifted in recent years from shopping high priced and high quality to low priced high quality goods (ZAK, 2004). That means that nowadays customers just want more value and service for their money. Customers are also conscious about manufacturers problems like working conditions, children labour and animal testing to which Karstadt responds with environmentally friendly products (KarstadtQuelle AG, 2003).

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