The Burberry Company is among the major luxury companies in the world and it was started by Thomas Burberry in 1856 when he was 21 years of age. It started as a small company in Basingstoke, Hampshire, England.1 The Company started gaining popularity in the World War I when it won a contract to supply the British Army with trench coats. The main mission that was driving Burberry was to introduce the idea of Britishness to the rest of the world. Since 1910, the company became an international business where it sold its products in different parts of the world like in the mainland Europe, the United States, and Asia. Burberry deals with different types of luxury products such as adult and children's clothes, shoes, watches, fragrances, home wares, bikinis, as well as other personal products. Most of its products are marketed in some of the large markets in the world like in Spain, America, and Asia. In addition, the company has entered the emerging and promising markets in China, Russia, India, and the Middle East.2 In the late 1990s, the company experienced an economic downturn because of lack of a good strategic direction and this caused it to lose a lot of profits which reduced from £62 million to £25 million. As a result, the company adopted a new strategic direction in order to try and regain its iconic status. This worked very well because its business model was tailored in such a way to take care of product development, the manufacturing process, distribution, as well as market communications. The new strategy worked well because by the end of 2011, the company had made a lot of profits which rose to £295.7 million and its revenues rose to £1.5 billion.1
Organizational Culture and Leadership at Burberry
Organizational culture is among the most important factors in ensuring the success of a business organization especially because it provides the assumptions about the way various tasks are carried out, what is acceptable in the organization and what is not, and the type of behaviors that are encouraged and those that are not encouraged in the company.3 Burberry has a culture that encourages core values where the company ensures to protect, explore, and inspire, contribute to the community, ensure collaboration and connectedness, and operate on democratic and meritocratic ethos. Besides organizational culture, leadership is another very crucial factor as far as the success of the organization is concerned.4 Due to the economic crisis that Burberry suffered in the mid and late 1990s, the company was prompted to rethink about its leadership and management and as a result Rose Marie Bravo was appointed as the new chief executive of the company. She transformed the company for the better and soon the Burberry Company became a £2 billion ultra-fashionable global brand. Angela Ahrendts replace Bravo in 2005 as the chief executive of Burberry and more positive changes were made in the company where focus was put in the product line like ensuring checks are more stable and putting more focus on higher-margin products such as perfumes and handbags.
Strategies Used in the Company
Every organization needs strategies to ensure it operates smoothly and that it creates and maintains its competitive advantage in the market. Michael Porter (1996), states that competitive advantage is all about being different and this means that ability of a business organization to deliberately choose different types of ideas and activities in order to ensure a unique mix of value.5 Burberry operates in different strategic themes such as intensifying non-apparel development, leveraging its franchise, ensuring to invest and operate in under-penetrated markets, accelerating the growth of retail products, and pursuing operational excellence. This means that the company operates on product and excellence as the two factors underpinning the company's brand momentum.
Corporate level strategy
Corporate level strategy is all about the overall purpose and scope where an organization decides the ways through which value can be created or added in various parts of the company to ensure success.6 This is concerned decisions and activities such as allocating resources to different parts of the business, and deciding on the geographic coverage, as well as mergers and acquisitions. In Burberry, Bravo came up with the strategy of international expansion in order to ensure that the company attains success. As a result of this, the company opened new stores in different parts of the world, London, Barcelona, and New York. In addition, Japan was also targeted because it had an enormous market and number of customers where the company could sell it luxury products. This strategy saw the soaring of profits to £162 million by 2005 and this was a six times increase in profits since Bravo had took over the management of the company. Furthermore, when Ahrendts replaced Bravo as the Chief Executive of the company, the company decided to explore the emerging markets in the world like in India, China, Russia, and the Middle East.
Business level strategy
Business level strategies include all the strategies that a business organization can adopt in order to ensure it competes successfully in particular markets. Specifically, business level strategies focus on the type of products that should be produced for a specific market and to compete more effectively with other competitors offering the same products.6 This is why Burberry decided to take the aforementioned strategies; intensifying non-apparel development, leveraging its franchise, ensuring to invest and operate in under-penetrated markets, and accelerating the growth of retail products. Furthermore, Ahrendts adopted a digital strategy and this made Burberry the first luxury brand to live-stream a fashion show in 3D. This was a very wise move as customers were given the ability to order products directly from the show's catwalk. She also introduced a social networking site in order to create a platform where customers and the company could engage into a powerful conversation and ensure that customers get what they want.7
On the other hand, organizational strategies are concerned with the way different parts of an organization operates to ensure they deliver effective corporate and business strategies by properly allocating resources, people, as well as processes.6 An organizational strategy can be seen where a business organization decides to make efforts to pursue operational excellence. Other strategies include introducing new IT systems to ensure smooth company operations in different parts of the world.
The macro environment
Any organization will need to be aligned with the environment on which it operates. This can be done through looking at the PESTLE analysis which is concerned with the political, economic, social, technological, legal, and environmental factors.8
Political: This is concerned with various factors such as political stability, foreign trade policies, taxation policies, as well as social welfare policies. As such, Burberry needs to be aware of the political environment especially when operating in markets outside Europe. However, the company as an advantage where it gets more than 60% of its raw materials from Europe and as such it is not negatively affected by Chinese imports impacts associated with Yuan/Dollar de-pegging.9
Economic: Economic factors includes unemployment, inflation, and interest rates. In the global economic crisis of 2008-2009, GDP in the UK contracted by 0.1% while the economy contracted as far as 4.9%. Even though in 2010 the economy had recovered, the economic slowdown led to high rates of unemployment in the UK. According to UK Country Profile (2011), nearly 2.5 million people became unemployed. In this case, Burberry needs to be aware of the inflation rates because this may directly impact on the buying capacity of customers.10
Socio-cultural: Socio-cultural factors include consumerism, income distribution, population demographics, and lifestyles among other factors. The Burberry Company focuses on the idea of Britishness, the positioning of democratic luxury, historic icon, and authentic outwear heritage all of which makes the company famous. The company has also succeeded in penetrating in emerging markets and they have produced products in accordance to the cultural factors of different countries.
Technological: This is used by a business organization to ensure that it operates hand in hand with the emerging technologies. Burberry is considered as the first company to live stream a fashion show in 3D which enabled customers to order directly products from the catwalk. In addition, Ahrendts was able to introduce the idea of social networking to ensure that the company and its customers communicate effectively.
Legal: These are factors like employment law, safety of products, and competition law. Burberry has dealing with the problem of the black market where copycats make counterfeit products. The company reportedly spends about £2 million each year to fight these copycats where it uses internet-monitoring services and works with authorities to arrest and sue the copycats.
Environmental: This is concerned with factors such as waste disposal and energy consumption and the laws about the protection of the environment. Burberry in involved in recycling process and it has recycled over 130 tons of raw material waste into useful things like car door insulation (Burberry.com).
Industry and market structure
The industry structure is used to show the roles and levels that are played by an organization. There are various structural forms such as: divisional, entrepreneur, functional, matrix, and holding company structures. The industry structure of Burberry is a functional structure or an entrepreneurial structure. When it comes to the entrepreneurial structure, the organization is controlled and organized by a chief executive officer like Ahrendts in Burberry. The functional structure, on the other hand, is concerned with operations such as production, human resource activities, finance, and marketing. According to Thompson (1997), these structures have various advantages such as having simple lines of control, they are centralized, and less overheads.11
Strategic capabilities are the abilities required by a business organization in order to ensure success and survival. The resources and competencies of an organization are what are used by an organization for strategic capabilities.6 The Burberry Company had been able to prosper and survive in the competitive business world because of its well reputed brand name, democratic luxury positioning, and its idea of Britishness.
Having adequate resources in an organization is among the key factors that ensure the business competes effectively in the market. There are two types of resources; tangible and intangible resources. Tangible resources are the physical ones and these include finances, machinery, plants, and labor. Intangible resources on the other hand include information and knowledge. Burberry has rich tangible and intangible resources especially because the company had been in business for more than 154 years. The company is among the leading British luxury brands and it has received various awards from Queen Elizabeth and Prince of Wales as well as being awarded because of its design and innovation.
Johnson et al (2006) states that competences are the activities and processes that a business organization can use to ensure the effective deployment of its resources in different departments.6 One of the core competences in Burberry is its digital innovation. This is seen by the live stream show that was seen in 3D and the creation of a social networking site in order to ensure customers are directly connected to the brand. All these ensure that the company communicate effectively with its customers to determine their needs and make products that meet the specific needs of the customers. Another competence was where the company has been promoting its brand through advertisements featuring celebrities such as the Beckhams, Nicole Appleton, and Elizabeth Jagger.
The financial situation of the Burberry Company can be seen from the new strategies that the company has adopted in order to ensure success and survival. In order to measure the organizational performance of a company, ratios are used to compare one year with another to determine whether profits and revenues have improved or deteriorated. This also shows whether resources were used efficiently in the organization.
Return on Equity (ROE): This is measured to determine the return from the profits gained by the company after tax and interests have been deducted from the shareholder capital. Burberry has a ROE of 28.2% meaning that for every £100 investment the company makes it gets back £28.2 and this is good for the company.
Gross profit: The gross profit refers to the profits made after making direct costs. In 2011, the company realized a gross profit of 67% and this showed a good sign not only for the company but also for its shareholders.
Current ratio: This is used in order to determine the cash position of a business organization. If the current ratio is more than 1, then it means that company has the ability to pay its liabilities from the assets it possess. The current ratio of the Burberry Company is 1.63 and this means that the company is able to pay for its liabilities as well as invest in new markets and diversifications.
Strategic choice involves an organization understanding the underlying bases for future strategy not only at business level but also in corporate level. It also involves developing those strategies that are best aligned to the goals of the organization. There are various variables which can be used by a business organization in order to determine the strategic choice to make and these include: resource and capability choices, generic strategies, economic and technological choices, and product or/and market sector choices.
Business level strategic choice
As mentioned earlier the business level involves ways through which a business will compete effectively in the market and ensure that it effectively meets the needs of its customers. Therefore, a business organization will ensure no frills, provide low prices, and focus on differentiation. Price based strategies are concerned with offering the customers with a lower price than other organizations that are offering the same products. When it comes to differentiation strategies, this means that an organization will provide unique products that are different from the ones being offered by other competitors. On the other hand, focused differentiation strategy is whereby a company provides its customers with high quality products and this can be used to justify the price set on the products.
Corporate level strategic choice
In this level, a business organization focuses on the future and takes the option of diversification meaning the company will engage in exploring new markets and also making new products. Diversification can come in two types: related diversification and unrelated diversification. Related diversification involves a strategy that goes beyond the current markets and products under which the company operates on and with. However, this strategy occurs within the capabilities of the business organization. On the other hand, unrelated diversification means a strategy taken by an organization to go beyond the current capabilities.
Using Porter's Five Force Analysis
Bargaining power of customers
The bargaining power of customers in the case of Burberry is low to moderate. This is because all the customers are individual consumers and as such this weakens the buyer power. Luxury retailers are able to differentiate themselves through the varying and different designs and styles of the products they offer to their customers. Even though there are other places where the customers can still get the apparel products, the psychological as well as demographic significance of retail products like garments are very important to the customers and this continues to weaken the buying power of the customers. In the case where brand loyalty exists, customers are most likely to stick to designers than retailers because designers will meet the exact needs of the customer. Because fashion is unpredictable, the products are created by designers and these products tend to be subjected to unpredictable changes and this in the end strengthens customer power.
Bargaining power of suppliers
Just like the bargaining power of customers, the bargaining power of suppliers is also low to moderate. The key people who act as suppliers in the luxury industry are mostly clothing manufacturers and wholesalers. Retailers will most likely source from foreign manufacturers and this therefore increases supplier fragmentation. The luxury manufacturing sector is labor-intensive especially because of the difficulties in most of its processes such as the sewing of garments. Therefore, when liberalization in the international trade, the power of the suppliers goes down because of the intense competition brought about by manufacturers operating in liow-wage regions like in China.
Threat of entry of new competitors
The threat of entry of new competitors is very strong. This is because retailers from different developed countries and high value industries of South Korea, Taiwan, Japan, and Australia are still dominating large and emerging markets in Asia Pacific area, India, and China. This also continues to attract other competitors in the apparel and luxury industry to join these markets. Moreover, entering the luxury industry does not require much capital because anyone can start with a small store and then expand to a big one even though there is still retaliation from the already existing businesses.
Threat of Substitutes
The threat of substitutes is assessed to be weak. Substitutes for luxury goods will involve the customers buying to other manufactures but the ones offering authentic products. This is especially because online services have made it possible for the customers to deal directly with the manufacturers. However, there are still homemade and readymade products that are available in the market and counterfeit products are still a threat. Despite that, most customers want to have that unique look in the society as well as have a group identity and as such the luxury products will still be essential to them.
Intensity of rivalry from competitors
Intensity of rivalry from competitors is moderate. The market for luxury goods is a fragmented one and this makes it possible for many smaller players to enter the industry. Some of the retailers have become diverse in the luxury products they sell but others put much emphasis on one product and this intensifies rivalry. However, most of these retailers are not capable to deal with increases in capacity because they would find it to be expensive for smaller players in the industry.
Burberry is a successful company that was started in 1856. Over the years the company has adopted different strategies to ensure that it competes favorably in the market and ensuring success and survival. The company has put a lot of efforts and abandoned old cultural status in order to develop strategies that are in alignment with the modern needs of the customers. Over the years Burberry has been able to come up with cutting-edge trends which have made it a modern and famous luxury brand. The British image of this company is fast becoming a trending idea in the United States and in Asia. The adoption of related diversification by the company has ensured a prolonged success especially because it concentrates on one value network of fashion and puts much effort in this. The study about the Burberry Company shows that it needs to concentrate on the PESTLE analysis in order to ensure that it has the relevant and enough information for it to expand in other markets outside the UK and Europe. This will be very important because it will serve as a roadmap for the company before it decides to execute any strategies. Furthermore, the strategies that have been adopted by the company over the years seem to have worked well for the company.
After studying the Burberry Company, its directions, options, and strategies there are few recommendations that the company needs to take into consideration to ensure continued success and survival in the luxury industry.
¬ To start with, in the business level Burberry should adopt the price-based strategy especially because of the various disadvantages associated with it like inability to reinvest and margin reduction. In addition, since the company has already developed a strong brand reputation as a Royal luxury brand, the price-based strategy will negatively affect it because in the long-run it will lose most of its high class customers. On the contrary, Burberry can put much efforts on focus differentiation strategy whereby it will provide its customers with high quality luxury products. New designs will also serve to attract more customers and the high quality products will help in justifying the premium prices that the company will set. High quality products and new designs will help in differentiating the unique look of the company from other rivalries in the industry offering the same line of products.
¬ In order for market penetration to be done in an effective manner, the company will have to focus on increasing the market share, or even by growing the total market size. Additionally, the company can also create a competitive advantage whereby it will ensure the creation of products that takes into consideration the specific needs of the customers. The company can engage in the organic method of development whereby it will increase the number of retail shops in the markets where it already exists.
¬ Another recommendation to ensure the continued success of the Burberry Company is that product development can be successfully done by putting new designers in this task whereby they will add value to the products. They will use famous celebrity endorsements as well as other suggestions from their customers in order to ensure that their products are very unique. The product development can be done by the company though licensing for new accessories or by using the organic method.
¬ Another recommendation is that Burberry can form an alliance with other companies like companies that manufacture luxury high end sports cars. Through this Burberry will be able to get involved with the production of their merchandise. A good example is Puma Company that engages in the process of producing clothing as well as other merchandise like wallets and bags for companies like Ducati and Ferrari. This will help in producing more revenues and profits for the company as it will generate a large pool of customers especially those also using luxury automobiles.
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