Market orientation is an approach to the management of the company, in which customers’ requirements are a major driving force of the company’s decision-making process, and it means that the company prioritizes the consumers’ needs and wishes over the sales oriented development and production of existing product. As a matter of fact, in 1970, the market orientation conception replaced the sales orientation conception which supported the idea of active selling of the existing product.
Hennes & Mauritz like any other clothing retailer in the world that propagate the so-called “fast fashion” is directed by the extreme market orientation philosophy which focuses on the understanding and satisfying of consumers’ demands and wishes. Hennes & Mauritz sells the trendy clothing for reasonable prices that makes its available for consumers who cannot afford expensive first lines of Preta-Porte from leading designers but are keen on being fashionable.
H&M has very strong marketing positions in European, Asian and American markets and it has some basic clothing lines that are the same for all these markets, but the company also has some clothing lines that distinguish radically from each other depending on the sales market for which they are produced. For instance, in European market Hennes & Mauritz is represented majorly as the department stores in order to satisfy preferences of a diversified consumer audience that includes children, women and men; whereas in the American market the company prioritizes the consumer audience from 15 to 30 years, especially, young fashion-conscious females.
Hennes & Mauritz distinguishes not only the continental markets but, sometimes, every country separately. For example, when H&M in 2009, entered China, where it nowadays has 100 stores, and is not going to stop its expansion in near future, the brand did some local adaptation considering hot Chinese climate and some traditions. However, as everywhere, 80 percent of H&M models remain the same as they are represented globally. Nevertheless, Chinese women like H&M’s clothes because H&M’s designers took into account their preferences. Ann-Sophie Johansson, H&M’s leading designer, notes that Chinese women prefer pastels that flatter their pale skin rather than the bright and bold colors, which European women like so much; but on the other hand, generally, Chinese women have unexpectedly similar tastes with European ones.
The so-called “integrated marketing” organization of H&M’s business departments, which allows it to coordinate the efforts of all its functional divisions to work in behalf of a common goal in order to deliver the best possible customer quality, value or price, is one more weighty argument that H&M is extremely market orientated. H&M has the team of more than 100 designers and they simultaneously work on the current collection by developing a variety of designs, and on the next season collection by culling out the fabrics and styles. The store managers daily provide the head office with updated information about colors, styles, and fabrics that customers are requesting. This information is collected by IT system, and immediately goes to the team of designers in order to update and correct current collection. It means that H&M is instantly distinguishing a popular fashion tendency. Discovering fashion on its peak is a reliable investment in better margins; it means more sales at full price and fewer with discounts. Therefore, H&M designers create and produce their models only according to the latest trends; they also are able to anticipate those trends, because otherwise they can be left behind.
H&M also demonstrates its market oriented strategy in being flexible to the sales and market fluctuations. For example, when there was an abrupt fall in sales of men’s clothes in the US, H&M responded in four weeks by reducing the production of unpopular line and creating and producing another one of higher demand. Of course, H&M also quickly responds to explosions in demand for those lines or even particular models that are popular by replenishing stocks of the stores in two weeks. In fact, almost every H&M’s store is replenished on the daily basis; it depends on its volume of sales. For instance, the Hennes & Mauritz’s flagship store located in Boulevard Haussmann in Paris receives even three truckloads of clothing every day.
Therefore, H&M keeps in step with its consumers (pull system). H&M always bears the customers’ wishes and demands in mind while designers are creating and then launching a new clothing line, Ann-Sophie Johansson, mentioned above, notes that the customers’ opinion is a very important thing for her colleagues and, particularly, for her. She also notes that in order to be updated she observes people in the public places and often asks them about their fashion preferences (Baker, 2011).
Identifying and Discussing the Bases for Segmentation that H&M Adopts
Segmentation is a division of the whole set of all potential consumers of the company’s goods into an articulate and stable groups (segments), each of which has its own specific product requirements . Companies segment the market by selecting the consumer groups for which they will produce their product. Demographic, geographic, and psychographic characteristics of consumers are four basic principles according to which consumers can be united into segments. Such market segmentation enables companies to formulate the appropriate products and services to meet the demands of targeted consumer segments. Segmentation of the market also facilitates the marketing promotion of the product by making the communication with the target audience more effective.
H&M mainly bases its market segmentation on demographic and psychographic characteristics of the consumers.
Demographic principle categorizes the population regarding to gender, age, social class, religion, education, and occupation (Kotler & Keller, 2012). Hennes & Mauritz is oriented on the segment that includes young females of age from 15 to 40 years. Indeed, its best buyer is the segment of young females of age between 15 and 25 years (Cope, 2012). This fact suggests that H&M has a really big window of opportunity to increase their sales by focusing their efforts on the females of age from 25 to 40.
Segmentation according to the social status allows dividing the population into segments of high, average and low price levels. H&M covers the average and average plus segment of consumers. The right understanding of the price segment is highly important for all business processes beginning from the fabric purchasing to the output retail prices for the product (Cope, 2012). For the company to be profitable it needs to use right raw materials in order to keep the steady balance between the quality and the marginal constituent of their product.
Except females, H&M is also targeting males of age from 15 to 40. However, this audience is much less profitable then female because males have comparatively low interest in fashion. For example, according to Mintel’s report about the fashion market in the UK, 61% of males are not interested in fashion clothing at all.
The next H&M’s segments are represented by babies from 0 to 18 months, children from 18 months to 14 years, and pregnant women, as well as women with the so-called “plus sizes”, H&M calls this line as “BIB”, which means “Big is Beautiful”. These segments are the least profitable but H&M’s mission is to provide the fashionable clothes for everyone.
Psychographic principle categorizes the customers regarding their lifestyle, psychological characteristics, values, or personality traits. According to Kotler and Keller, H&M describes their target segment as “young, impulsive, and enthusiastic people who seek diversity and excitement in their lives; therefore they spend a comparatively high proportion of income on fashion, entertainment, and socializing” (2012). Therefore, H&M’s target audience is those who interested very much in the latest trends from fashion shows and catwalks. Hennes & Mauritz does not only meet the demands of this segment by offering qualitative and trendy clothing at affordable price but satisfies their sense of self-importance, self-actualization, and self-representation (H&M, 2011). For example, the females from 15 to 25 years old dominate as a purchasing audience in fashion industry not because they have the biggest income, but because they follow the fashion trends and cannot allow themselves to wear outdated clothes. The trendy clothing for them is what gives them the sense of self-importance, self-representation, and even self-perception. Exactly for this reason, they spend a lot of money on new clothes every season, even regardless of their economic status.
Therefore, the H&M segmentation is majorly based on gender, income, age, and lifestyle of their consumers. Hennes & Mauritz pays a lot of attention to age group but not the race or ethnicity of its audience, because the shoppers have surprisingly similar tastes all over the world. However, the absolute disregard to the race and ethnicity of its multinational audience is fraught with risk of losing popularity; therefore, about 20% of H&M’s lines are produced according to the traditions and preferences of the local population.
Segmentation makes the connection between the company and its consumers possible. Generally, namely segmentation makes possible the existence of mass market. From this point of view, the term “segmentation” is a synonym for term “generalization”, so the risk of losing some important peculiarities and distinctions is almost inevitable. In other words, the company may disregard and loose the opportunities to attract an important segment of consumers, for example, more profitable ones in a different consumer parallel (Cachon&Swinney, 2011).
Marketing Benefits to H&M of Commissioning Karl Lagerfeld, Stella McCartney and Matthew Williamson to Design Limited-Edition Clothing Ranges
In 2004, H&M launched its first limited collection together with Karl Lagerfeld. The idea of the campaign was to stir up the further expansion and brand awareness as well as increase margins before entering new markets. The overseas debut of the partnership with Karl Lagerfeld was absolutely successful; it paid for itself to the full extent of what was anticipated. The limited exclusive collection from Karl Lagerfeld was sold out within several hours in all H&M stores where it was put on sale. Therefore, this collection was followed by collaborations with other fashion designers such as Stella McCartney and Matthew Williamson that appeared not less successful than the first partnership. These successful advertising campaigns with famous designers made brand H&M more appreciated by the potential customers and more respected by the competitors (Cope, 2012).
Beginning from 2004, Hennes & Mauritz has been repeatedly releasing exclusive collections together with fashion designers of the first magnitude according to the global scale, and thereby, it is sending out a loud and convincing message, which emphasizes the fact that these exclusive collections of limited edition are quintessence of all the perfection and exility of high fashion, yet herewith, the H&M’s promise of offering the finest clothes at affordable prices is also fulfilled. In such a way, H&M guarantees its customers that the moderate price does not discredit in any way the high worthiness of its trendy, elegant, and high-quality clothing that is not inferior to the clothes from the Haute Couture designers that are presented on the catwalks of Paris, London, and New York. In other words, Hennes & Mauritz announced and propagated the idea that value and price should not be viewed as mutually corroborating elements and that an item of clothes can be at reasonable price and, simultaneously, fashionable and of high value. Owing to the corroborations with respective fashion designers, Hennes & Mauritz was able to create an associating connection between its brand and the Haute Couture. In the course of such collaboration, the Haute Couture designers transferred their ideas and special techniques to H&M’s team of designers. One more additional marketing benefit is that when such limited H&M collections are put on sale, the famous name of designer does the perfect job by adding an extra value to the clothes. The customers without any additional convincing believe that they purchase the clothes of the premium quality and exclusive design at moderate prices. The association with brand Haute Couture gave Hennes & Mauritz the opportunity to reinstall the value of the brand in the minds of not only potential and new customers but also the existing ones in order to encourage them to more actively buy its clothing. Moreover, it gave Hennes & Mauritz the opportunity to raise prices for items from the Haute Couture designers considerably, yet without a risk of losing customers. The partnership with these designers provided H&M with credit of trust especially from fashion conscious, yet price sensitive group of consumers. Thus, these partnerships led to the increased sales and simultaneously healthier margins, which resulted in higher net income. The collaboration with famous designers such as Karl Lagerfeld, Stella McCartney, and Matthew Williamson also served as a turning point of distinction between other retailers that produce and sell fast fashion and H&M, which gave the consumers a weighty reason to visit H&M’s stores in order to take more considerate look on their collections.
The benefits of such corroboration are mutual. Hennes & Mauritz group get the attention, higher status and increase in sales, whereas the Haute Couture designers get the substantial financial remuneration. For example, Karl Lagerfeld and Stella McCartney were rewarded by 1 million of the US dollars for their contribution in creating H&M’s collections. Moreover, it is also extra promotion for the Haute Couture designers, since they commit the socially magnanimous action by sharing their craftsmanship with mass market.
Therefore, involving the famous designers in process of creation its collections was an extremely effective strategy on the part of H&M’s management. Considering the fact that all H&M’s collections from the Haute Couture designers with limited editions were sold-out completely, the huge investments in it were paid out completely. However, what is more important that the marketing benefits, which H&M gained from collaboration, were not only one-time thing but had a prolonged effect that resulted in much higher status of H&M product in minds of the consumers all over the world (Barrie, 2011).
Marketing Challenges to Face H&M in the Future
Hennes & Mauritz group announced its financial results as of November 30th, 2012 – the end of the financial year for H&M. The number two clothing retailer in the world achieved rise in its gross sales by 9.4 %, however, net sales increased only by 1 % (CBCNews, 2013). Meanwhile, after failing to meet expectations of experts in the fourth quarter of 2012, the company’s shares fell by 2.9 % on the Stockholm Stock Exchange. Karl-Johan Persson, the chief executive of Hennes & Mauritz group, states that the company’s profit was eaten by the investments in 304 new stores instead the of the planned 275, as well as aggravating effects of currency exchange rate. In 2012, new stores were mainly opened in the United States and China. Nowadays, the company is presented by 2,800 stores in 48 countries and provides work places for more than 104,000 people. H&M group is planning 325 stores in 2013 financial year, as well as launch of new fashion brand (Business Insider, 2012).
Despite the repeated collaborations with the Haute Couture designers, the quality of the H&M’s clothes is not better than the quality of other fast fashion retailers. Therefore, high attention has to be paid to the quality of the product. Nowadays, everyone knows the secret of success of such leading retailers as Inditex Group and H&M group, so it is not long until the quality of the product will become the crucial factor in choosing the store for shopping. H&M’s product is not popular among older people not only because they are not fashion-conscious but because of low quality of this product. One more reason for concern is overcrowded and unwelcomed store’s atmosphere. Although H&M propagates a welcoming and comfortable atmosphere in its stores, (www.hm.com) it is not what the customers see when they visit one of the overcrowded and noisy stores, for example, in Germany. It is a quite annoying and even stressful experience with long queues to the dressing rooms and cash desks. Considering that today almost every fashion retailer produces trendy clothes and of approximately equal quality, the comfortable and inspiring store is another crucial argument for in choosing the store for shopping (The Local, 2013).
Nowadays, the technological equipping of H&M businesses is on high level, the company invests a lot of money in updating of their computer systems and other equipment. The latest improvement was directed to organize analytical and supply process. However, potential of Internet sales remain poorly activated. Company has well-organized on-line sales only in such countries as Denmark, Sweden and Finland. On-line sales in Germany remain poorly organized so far. One more problem for Hennes & Mauritz group is related to the constant aging of European population. As were mentioned above the dominant buying audience of H&M is young females from 15 to 25 years. However, the quantity of this audience becomes less and less every year, whereas the quantity of older fashion-conscious females becomes more and more in the course of the time. Therefore, H&M group has to re-think its position regarding its dominant buying audience and find the solution to attract the older audience. The management of H&M group should not forget that the segment of older and conservative people have much more buying potential than their young audience. Despite the population became more fashion-conscious every year, there are still a huge amount of people, for whom H&M’s collections are not acceptable or too extravagant. Thus, the company should think about adding a new product line to meet the needs of this segment.
The overall advice for Hennes & Mauritz group is that the company should not rely on their existing dominant buyers; it should seek the possibility to widen the target audience. Today, the competition for market share is hard but tomorrow it will be much harder. H&M should today take care about improving its customer services, quality of the product and ful%uFB01lling the needs of a wide range of consumer audience.