Mr Price Clothing
Milan von Delft
Executive Summary 3
Background information 3
Questionnaire Design 3
SWOT Analysis (micro environment analysis) 7
Porter's Five Forces Model (Market environment analysis) 8
Level of Rivalry in the Market 8
Availability of Substitute Goods 9
Threat of New Entrants 9
Power of the Supplier 10
Power of the Buyer 10
PESTLE (Macro environment analysis) 10
Strategic Plan 12
Poor customer service 12
Faulty online store 12
Perceived poor quality 13
Cash sales over credit sales 13
Mr Price Home, Sport and Clothing 13
Works Cited 15
The purpose of this study is to assess the opportunities for long-term, sustainable growth that exist within Mr Price's business environment, and also to prove that the growth currently being experienced is substantial, and steadily growing. This will be done by analysing the three business environments – the micro, market and macro environments, using the SWOT tool, Porter's Five Forces Model, and PESTLE Analysis, as well as by issuing questionnaires and deriving conclusions from the collected primary resource data. After that, strategies will be a developed and placed into a strategic plan to help secure the company's position in the long term. These strategies will be used to exploit the “opportunities for growth” that Mr Nigel Payne mentions within the assignment brief. By implementing these strategies, the Mr Price Group Ltd. can ensure that their business does not end up “chasing diminishing marginal returns”.
Mr Price Group Ltd was started in 1985 by Laurie Chiappini and Stewart Cohen (Cairns, 2012). The company first started off as a fashion retailer that wanted to provide clothing at reasonable prices, and thus Mr Price Clothing can be seen as the “founding division” of the Mr Price Group Ltd. Mr Price clothing also focuses on the creation of value through providing low cost, high quality fashion-wear. The first Mr Price store was opened in an old factory in Durban in 1985. Continuing to focus its business model of fashion retailing, the two men joined up with BoE to buy the near-bankrupt John Orr's business (with its department stores, and Miladys and The Hub). Another year later, John Orr's was sold off, and the money was used to start the Speciality Store Company (Storeco), which included the Mr Price outlets. In 1989, Storeco was listed in the JSE, and two years later Mr Cohen and Chiappini bought back their company. The first Mr Price Home store was launched in 1998. The Storeco group was renamed “The Mr Price Group” in 2001, as those were the most successful businesses. Mr Price has been doing very well recently, and sine its IPO, the group has never decreased dividends.
• The questionnaire was done according to the Harvard questionnaire design guidelines (Harrison, 2007).
• The questionnaire stated that all responses were anonymous and would not be sold to another third party (in order to comply with ethical standards).
• There are some unconventional/misleading questions on the questionnaire – questions that are designed to place the person filling in the form into one of two categories: those who are aware of the psychological manipulation of marketers (group 1), and those who aren't (group 2).
• Questions 14 and 16 are the qualifying questions for this grouping. Group 1 could be seen as being more educated/perceptive than group 2, and thus their answers for certain questions will be highlighted in different categories.
• Question 14 asks which one is preferred, a 50% off special, or a “buy-one-get-one-free” (BOGOF) special. Financially, they are exactly the same (Tuttle, 2012).
• Question 16 asks which one is preferred, Coke or Pepsi. However, in blind test tastes, when given different drinks, the test subjects say they are the same drink. Thus, it is actually the brand that we prefer, not the taste (Lehrer, 2010).
• On the next page, a copy of the survey is included.
• There are some questions in the questionnaire which had results left out as they were irrelevant to the topic.
• Only 7 people got question 14 “right”, and only 2 got question 16 “right”, but none got both “right”.
Average rating (Q1)
Brand strength 7.08
Value for money 7.42
Community enrichment 5.15
Question Yes No
2 9 16
3 10 15
4 5 18
5 2 22
6 14 9
Mr Price Research Task Survey
ALL INFORMATION PROVIDED IS CONFIDENTIAL, AND WILL ONLY BE USED FOR THE PURPOSE OF A RESEARCH TOPIC. YOUR INFORMATION WILL NEVER BE SOLD/SHARED WITH A PARTY UNRELATED TO THE ASSESSMENT OF THE TASK.
1. On a scale of 1-10, how would you rate the following aspects of Mr Price Clothing?
• Quality _____
• Brand strength _____
• Price _____
• Value for money _____
• Service _____
• Advertising _____
• Innovation _____
• Community enrichment _____
2. Have you ever gone to a shopping centre with the intention of going to Mr Price Clothing ONLY? _____
3. Have you ever seen a Mr Price Clothing advert on TV?
4. Do you follow Mr Price Clothing on any social media?
5. Have you ever bought an item from Mr Prie Clothing after seeing it being advertised? _____
6. Have you ever seen another person wearing the same Mr Price Clothing item as you were? _____
7. How many items from Mr Price Clothing would you say are in your wardrobe? _____
8. Have you ever purchased an item from Mr Price Clothing at the recommendation of a friend? _____
9. Tick the shops that you would go to instead of Mr Price clothing if you had a budget of R200
Pep Woolworths Edgars Jet Ackermans Factorie
10. Tick the shops that you would go to instead of Mr Price clothing if you had no budget:
11. Pep Woolworths Edgars Jet Ackermans Factorie
12. Would you rather go to a sale at Woolworths, or Mr Price Clothing (with no sale) _____
13. Would you rather buy a R350 pair of jeans from Edgars, or a R150 pair of jeans from Mr Price Clothing? (both jeans look the same)
14. Which is more appealing to you: a 50% off special, or a “buy-one-get-one-free” special? 50% Buy-one-get-one-free No difference
15. Would you rather buy a pair of Nikes, or a pair of locally produced sneakers (for the same price)?
16. Which one tastes better: Coke or Pepsi? Coke Pespsi No difference
SWOT Analysis (micro environment analysis)
• Mr Price prides itself in providing value for money (Mrp Website, 2014), and this is attractive to consumers that “believe that South Africa's economic prospects will deteriorate further” (Preuss, 2016).
• Mr Price Clothing has started to exploit the online community very effectively. For example, Mr Price clothing brought top fashion journalists and bloggers to their headquarters to generate more exposure for the launch of their online store (Tohlang, 2012)
• Mr Price regularly holds sales and assorted markdowns on their products as they go out of season, as well as bringing out items to coincide with season changes, or events such as Mother's Day, having 36 sale items for Mother's Day (Mrp website, 2016) .
• Mr Price deals mostly in cash, with roughly 80% of sales being cash sales. This focus on cash sales has allowed Mr Price to steadily grow in size. (Staff writer, 2014).
• The store is associated with being cheap, due to its focus on “value for money” (Mrp Website, 2014), which in the modern, brand-obsessed society, isn't a positive trait to appeal to wealthy consumers (Dhar, 2013)
• There are often complaints of poor service from Mr Price Clothing outlets. Many people have spoken about rude customer service representatives, unhelpful assistants, disrespectful cashiers and incompetent managers. On hellopeter.com, Mr Price's service has been rated as 2 stars by 86% (957 out of 1119) of the reviewers (hellopeter.com users, 2016)
• Mr Price goods also have a reputation of being poor quality, due to their focus on “value for money” (Mrp Website, 2014). Regardless of the actual quality of the goods, the perception of poor quality is enough to damage them.
• Most of Mr Price's goods are imported (Derby, 2012), and so this might be viewed negatively by the growing “Local is Lekker” movement, which favours domestically produced goods (specifically textile goods), over imported products (Lurie, 2011). This has destroyed many jobs in the textile industry, as “South African manufacturers simply cannot compete with the low labour costs enjoyed by their Chinese counterparts” (Joubert, 2010)
• Mr Price could switch to local suppliers to fully exploit the “Local is Lekker” movement that is fast growing in South Africa (Lurie, 2011). The possible loss in revenue will be mitigated by a higher sales turnover, as many consumers will be likely to buy goods from Mr Price Clothing to support their own country. It is also a good selling point for the Marketing department to exploit, and also serves as a form of CSR (Corporate Social Responsibility).
• They could re-evaluate their supply chain and attempt to save money at some point in their supply chain. This could help reduce expenses, and increase profits, and thus they would have more money to bring out new products/improve existing products.
• Scientists have recorded an unusually warm winter sun in the Arctic – and this could be the sign of a warmer winter than usual (Freedman, 2016). This might be the opportunity for Mr Price to bring out a lighter, cooler winter fashion line. This would allow them to have some different items to what the competitors might have, and might even net them some extra market share.
• In the 2008 Financial Crisis, many companies that “normally rely on credit suffered heavily” (Havemann, 2016). Mr Price Clothing, with its 80% cash sales (Staff writer, 2014).
• Mr Price is classified as an “importer”, as they import the majority of their goods. The weakening rand could have a major influence on their profit margins (Derby, 2012), as they will have a reduced purchasing power.
• The Mr Price Online store has had many problems in the past, even prompting bloggers to angrily post damning articles about the website (Webb, 2013). This is always a possibility to any online resource owned by the business. Nothing can guarantee the smooth running of anything on the web.
• Mr Price Clothing sells is in the fashion retail business, one of the industries with the most volatile consumer tastes. “The fashion industry has undergone the maximum number of shifts regarding the trends” (Maini, 2016)
Porter's Five Forces Model (Market environment analysis)
For the purposes of this analysis, a factor will be rated on a scale from 1-10.
Level of Rivalry in the Market
• This refers to the intensity of the competition within the business' market (Hanlon, 2013).
• This is very high (9) in the market, as there are many other clothing retailers that cater for the same middle to upper LSM (Living Standards Measure) groups (Mr Price Head Office, 2015), such as Woolworths, Jet, Ackermann's, Foschini, Edgars, Truworths and Factorie.
• In order to overcome the competitors, the business needs to provide a USP (Unique Selling Point). For Mr Price Clothing this can be anything from low prices to sales, to a better customer experience, a higher quality product or more fashionable items. As mentioned previously there are many problems with customer service (hellopeter.com users, 2016) and their online store (Webb, 2013).
Availability of Substitute Goods
• This refers to how easy it is to obtain a different product that satisfies the same need as the company's product (Hanlon, 2013).
• This is low (3) for Mr Price Clothing, as there are not many other goods that satisfy the need (clothing). However, it could be said that tailor made clothing could be a substitute good, as it does satisfy the same need as Mr Price Clothing's product (off-the-rack clothing). However, this is a very expensive substitute, and so this is not a very appealing option.
• Due to the low level of this market factor, it is not necessary to develop and implement a strategy to combat this threat, as there is no threat.
Threat of New Entrants
• This refers to how easy it is for new businesses to start up in the same market as the company being analysed/the attractiveness of the market (Hanlon, 2013).
• This is high (7), as the South African retail textile industry is a very lucrative industry (see figure 1 below). However, to enter this market would require large amounts of start-up capital, and this could deter many entrepreneurs.
• To combat this, it is important to ensure customer loyalty by doing things like introducing loyalty programmes, such as a points system, or levels of club membership with discounts available.
Power of the Supplier
• Power of the supplier refers to how dependent the business is on the supplier for its daily operations (Hanlon, 2013).
• Mr Price Clothing is a retailer that sells goods, and so it is quite dependent on its suppliers to run its business operations, however they deal in non-perishable items (clothing) that only go out of fashion every 3 months, and so the business can order larger volumes and hold the stock for as long as they need to, thus the power of the supplier is medium (6).
• To mitigate the possible risk of the supplier not delivering the new stock, or refilling existing stock levels, the business can plan in advance and place the orders early, so that the supplier has a lot of time to plan everything, so that on the day that the new items get unveiled, the business is fully stocked with all the items. It will also be imperative to maintain adequate stock levels and place orders timeously.
Power of the Buyer
• How much power the buyers hold over the business. The power of the buyer increases when there are less buyers (Hanlon, 2013).
• Therefore the power of the buyer is high (8), as even though Mr Price Clothing is a retail business (and so all their revenue is as a result of consumer purchases), there are a lot of consumers, so the power of individual buyers is low. However, as a whole, the buyers can still have a major influence on the company.
• To appease the buyer, the company should hold regular sales, maintain customer relations by quickly addressing customer complaints on online forums. Customer relations has been a problem previously (hellopeter.com users, 2016), and so this is an important aspect to fix.
PESTLE (Macro environment analysis)
• This includes the internal politics (jealousy, team dynamics and personal interests) and the external politics like trade restrictions, elections, political stability and war (Dcosta & McDonough, 2015).
• There is a lot of political instability in the country, what with events such as the local government elections coming up. These events have caused many parties to become “worried about growing levels of social unrest” (Stone, 2014).
• In order to combat this, Mr Price Clothing can open up stores in neighbouring countries, to ensure that if South Africa collapses, the company can live on.
• Analyses external economic factors like taxes, interest rates, inflation, exchange rates, credit and minimum wage (Dcosta & McDonough, 2015).
• The Rand has recently weakened substantially against other currencies, and this has weakened Mr Price Clothing as they import a lot of their products (Derby, 2012).
• To prevent this from reducing Mr Price Clothing's profits any more, the company can source local suppliers in order to maintain stability even if the Rand weakens further.
• Accounts for social issues such as education, unemployment, diseases like HIV/AIDS and life expectancy.
• Recently, 20 schools were burned down in Limpopo (Ndlovu, 2016), and this could affect business in the long-term, as there might be a generation of people with poor education, and they could make for incompetent employees
• Mr Price can combat this by screening their new employee's based on their marks, or offer extra training to those with lower final marks.
• HIV/AIDS is a big problem in South Africa, with about 10% of the population being HIV positive (StatsSA, 2013), and this affects productivity negatively as workers are absent from work more often as their immune system is weaker (Pietrangelo, 2014).
• The business can host an HIV/AIDS awareness seminar, and offer free, confidential testing to all employees, so that if employees are HIV positive, they can take steps to manage the disease.
• Takes into account changes in technology, and how this affects the business (Dcosta & McDonough, 2015).
• As a business that sells large volumes of goods that are quite bulky, Mr Price Clothing will have high transport costs. Thus, they need to ensure that changes in fuel economy don't leave their suppliers behind. If the suppliers don't take advantage of the reduction in fuel consumption, they could still be having high prices, which subsequently damage Mr Price Clothing's profit margins.
• Mr Price Clothing can thus regularly re-evaluate their supply chain in order to stay with a supplier that delivers the cheapest goods.
• Considers factors like changes in labour law, existing labour law, import-export law, as well as things like the Skills Development Act (Dcosta & McDonough, 2015).
• There are many new environmental laws being passed as the world moves into a state of heightened awareness of environmental issues. Laws such as the Carbon Tax Bill (proposed by the Minister of Finance in 2015) will drastically affect the business because there will suddenly be a large, previously un-encountered expense for the business.
• To avoid this particular bill, Mr Price Clothing can already start to look at reducing their carbon footprint (perhaps by changing their supplier), as the bill is only proposed to be implemented in 2017, and so there is plenty of advance warning.
• Looks at things like cultural norms across different cultures and how they interact, as well as different people's opinions of the same topics (Dcosta & McDonough, 2015).
• For instance, the Asia-Pacific area, where most of Mr Price Clothing's suppliers are located (Derby, 2012), has an estimated 122 million children aged 5-14 years working, and are mostly not enrolled in school at all (International Labour Organization, 2015). However, in South Africa, child labour is illegal and hated by consumers.
• Thus, Mr Price Clothing needs to make sure that their suppliers are not engaged in unethical activities like child labour, and if they are, to switch suppliers. Even if this costs a bit more, the risk of possible consumer backlash towards a company using child labour is higher than the increase in expenses.
Based on the above information, the following strategies have been developed to address certain aspects discovered by the analysis of all the business environments, to ensure that the company's share price continues to rise, they continue to create value for customers, and benefit the community overall.
Poor customer service
• This has consistently been identified as an issue for Mr Price Clothing (hellopeter.com users, 2016), and needs to be addressed quickly as it damages the brand image.
• Mr Price Clothing can implement a new “reporting policy”, where customers can quickly place a letter into a box near the shop's exit with their complaints/compliments so that they can be quickly addressed by the business it is relevant to. Having a paper system will mean that complaints are more discreet – one bad review will not spread all over the internet, it will stay contained.
Faulty online store
• This was listed as a problem (Webb, 2013), and it is an area where the business can generate a substantial competitive advantage, as most companies have a faulty/neglected online store. If Mr Price Clothing can have a flawless online store, they will have cornered the online market, as most customers will switch their loyalty for the improved “experience”, thus “stealing” a larger market share.
• The business can hire a larger IT team, and hire some permanent staff in order to have a team on-site to quickly respond to issues.
• This is an example of a market penetration strategy.
Perceived poor quality
• The lack of “snob value for the business is what causes many wealthy consumers to avoid the business.
• To combat this, the business can implement a product development strategy, and introduce a new range of formalwear for the higher-end customers. Mr Price already has a brand for collared shirts and dresses (semi-formalwear) called Oak Ridge, so it would not be too much of a stretch.
Cash sales over credit sales
• The advantage that Mr Price Clothing has gained by focusing on cash sales (Mr Price sticks with its fous on cash sales, 2014) has left it in a stronger position that some of its competitors who offered credit (Havemann, 2016).
• Thus, Mr Price Clothing is in a unique position, and thus there is an opportunity for the business to implement a diversification strategy, and enter the food retail market with something like a “Mr Price Food” chain of stores.
• This position could also be exploited in a different way – Mr Price Clothing could implement a market development strategy, and spread their business to other countries. This might be the safer option, as if the South African economy collapses/fails again (Preuss, 2016), there will still be a good source of revenue for the group. This will also be viewed more favourably by investors, as it will decrease the risk of investing in the Mr Price Group Ltd.
Mr Price Home, Sport and Clothing
• The Mr Price Group Ltd. consists of 3 similarly branded companies, and so they could implement a Joint Venture (corporate combination) strategy – where they make an “mrp superstore”.
• This could reduce expenses by saving on the rent, as well as increase sales, as the chance of impulse buys would increase. It would also be more convenient.
In conclusion, it can be seen that Mr Price Clothing has many exciting growth opportunities, and thus Mr Payne is correct. The future if the company still seems bright, as there are many opportunities for growth, and if the strategies are followed, the business will continue to grow.
• Sustainable – able to last longer
• Markdowns – reductions in prices
• Perception – the view of something
• Domestically – produced in the same country
• Revenue – income
• Mitigated – avoided
• Market share – the amount of loyal customers a business has
• Credit – when consumers can buy now and pay later
• CSR – Corporate Social Responsibility, refers to company's responsibility to help the community in which it operates.
• LSM – Living Standards Measures. A ranking system for a demographics' purchasing power
• USP – Unique Selling Point
• Perishable – has an expiry date
• Joint venture – when two companies work together.
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