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Report for Strategic Analysis Report of Burberry performs fairly well in the market with its financial highlights

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Strategic Analysis Report of Burberry

Introduction

Burberry Group PLC is a global luxury fashion house that focuses on the design, production and distribution of luxury products, including accessories, cosmetics, clothing, and perfume. The fashion-based high-end brand Burberry performs fairly well in the market with its financial highlights claiming revenue of more than £2,500 million: “Burberry has delivered 2016/17 revenues of £2.8bn (down 2% underlying)”, according to the annual financial statement regarding year to 31 March (Burberry Group plc, 2018). The company is well known for supplying products over a wide geographical area, responding adequately to both local and international demand.

Having adapted the new technologies into sales and marketing strategy, reaching the market has become easier for this renowned business which operates on the basis of a famous fashion house Burberry. People are now able to make orders simply with their phones, and the products are being delivered to capture their attention depending on their interests in the World Wide Web. In the 2016-2017 financial years, the company was able to achieve £2.5bn revenue and adjusted profit prior to tax of £421m (Burberry Group plc, 2018). Other than achieving higher levels of profitability, Burberry is exposed to a wide range of forces that affect both company’s management and marketing plans, leading to an overall impact on productivity. Being one of the widely distributed manufacturers of clothing and accessories in the industry of fashion luxury, the key factors of profitability as well as main issues experienced by Burberry are critically analyzed in this report, which is additionally performing the task to examine strategic steps taken as a reaction to the aspects of financial performance.

Following the currently changing market trends, Burberry is exposed to many issues that need to be addressed to maintain existing customers and invite new ones. With the advanced technology, global marketing has become easier owing to the emergence of many marketing mediums like Facebook, Twitter, among others. Precisely, the use of social media provides fast and convenient ways to reach the market directly (Park, and Kim, 2016). Similarly, the company needs to settle for reliable suppliers to promote continuous production and avoid scarcity of products in the market that will eventually make customers shift to alternative producers. This way, it will successfully be able to address the subject of brand loyalty which it is facing at the moment.

2.0 Strategic Issues Facing Burberry

2.1 Interest Rates

China, a country where Burberry’s operations are currently geared has among the highest tax and interest rates in the world. However, it has a moderate corporate tax (Campbell, 2010). Nonetheless, the prevalence of low corporate tax provides an opportunity to enter into and sustain itself in a technological competitive market.  Furthermore, the excellent technological environment in China and many other parts of the world makes the market operations quicker and easier (Hubler, 2011). Burberry therefore, should capitalize on the use of innovation to create economies of scale and thus reduce the cost of operations.  This will enable it maintain a low cost profit.

The unfavorable exchange and interest rates have had a material impact on Burberrys profits over recent years. In the United Kingdom for instance, the pound has risen against other major currencies including the dollar. This has mandated the apparel firm whose operations are wide to issue caution on licensing and whole business. However, despite this warning, the company was still able to achieve a rise in profits of 1,453p at the end of 2017 financial year (This is Money, 2018).

It also needs to be considered that customers are required to pay interest on the loans, be it mortgage, car loans or personal loans. However, when the interest rates become higher, a client will have less money (Vincent, & Allain 2013). This will subsequently impair the capability of buying products and services, and thus make the business suffer from reduced sales. In the event when the interest rates remain low, customers will have more cash which they will then spend on their business. This principle is particularly relevant when the businesses customers are other businesses or the public. Both of these are required to pay interest on their loans. Therefore, the lower the interest, the more they can buy from the company (Vincent, & Allain, 2013).

2.2 Porter’s Forces- Supplier Power

      Gill & Ramaseshan (2007) explain that suppliers account for approximately 80% of the product-lead time issues and 30 % of quality problems for an organization.  In reaction to reduced brand loyalty, Porter's forces can be analyzed to identify necessary changes that can be made to increase profitability. By using supplier power as the force of choice, the company is in a position to identify potential suppliers, in addition to analyzing and comparing their prices in a way that will favor production. Through proper supply, the company can generate their products in time and good quality, thus, solving issues related to consumerism and declining loyalty. For instance, reliable suppliers can make early deliveries, making production to be fast(Tanwar, 2013). As a result, customer needs can be addressed without delays. Another factor need to be considered when selecting suppliers is quality. The supplier of choice needs to fulfill the required quality standards. The company needs to ensure a constant supply of resources for the convenient production of goods that will engage consumers and prevent them from diverting to other producers.  Similarly, the supplies should meet high-quality standards compared to those offered by competitors. The company also needs to attend to the available suppliers by paying them well to ensure that they are effective. Additionally, through a close monitor, cases of late supplies can be controlled (Tanwar, 2013). As a result, production can be improved as well as responding to the market appropriately and making a rapid distribution to consumers.

2.3 Inner environment- Management

Environmental sustainability is also part of the strategy to improve brand loyalty. In this regard, Burberry Company can address issues of sustainability by scanning the inner environment. The main factor to consider in this case is the company management. Depending on the state of management enforced in the company, the company is likely to enhance its sustainability in the environment. The luxury products like perfumes can be analyzed to ensure that they are not health hazardous to the consumers and the environment (Choi, and Li, 2015). The industry management also faces the challenge of training its stakeholders on sustainable management of the environment. Emphasis can be placed on recycling products like clothing or perfume bottles to minimize wastes in the surrounding (Joy et al, 2012). The issue of sustainability is therefore strategic since it enables the company to examine its operations critically and identify their impacts on the environment. By doing this, it can show concerns to humanity, thus, drawing appeal from stakeholders, members of the public and customers. This will subsequently help in creating a positive image for the company.

3.0Critical Success Factors

During objective formulation, the company considers high-level goals that need to be met for it to run smoothly under critical environmental conditions. For effectiveness of the company, the Critical Success Factor needs to conform to the set standards or goals to enhance the process of strategy implementation in the business (Joy et al, 2012). For instance, it has to be vital and beneficial to the managerial success and the company as a whole. To execute a business strategy, the company considers a series of critical steps to determine the critical factors that are necessary for business success. After these factors have been identified, it becomes easy to implement strategies for the achievement of goals. The critical factors that determine the successful existence of Burberry include unique resources like tangible, intangible, and human resources. The unique resources take part in the overall production of the final product. Other critical factors are the uniqueness of the capabilities of the making process inside Burberry.

3.1 Unique Resources

3.1.1 Tangible resources:

Tangible resources in Burberry can be easily identified and include physical assets and financial resources. The company demonstrates how it uses financial resources through financial statements and balance sheets, showing the amount of money invested in production, design, and distribution of products and the profit obtained (Joy et al, 2012). Regarding physical asserts, the company owns a total of 443 stores, in addition to 56 franchises situated in 80 countries. Among these, Europe owns a majority of the market with sales going up to 34%, followed by Asia with 33%. The physical assets act as direct links between the market and the company (Frank, 1998).

The company also owns a London Line which is the most common and appealing read to wear range of products by Burberry. It also boasts of more than 450 lines of women wear which are produced every season alongside 330 lines of menswear. Both of these wears have fetched a huge turnover over the recent past (Joy et al, 2012)

3.1.2 Intangible resources:

It may be difficult to identify intangible resources in the company. However, are those invisible resources that Burberry Company has successfully exploited to gain profit. For instance, the company takes advantage of its name, image, culture, and reputation to draw attention from consumers, leading to increased sales and profits (Frank, 1998). Furthermore, the company has a good brand name, and image contributing to its favorable reputation. Because of this, Burberry does not have to put a lot of funds through advertisements to raise its market share. Instead, it uses its culture to attract consumers who are greatly enticed by the fashion designs sold by the company.

3.1.3 Human resources:

 

Burberry has attentive personnel who are ready to deliver customer-designed products at their best. The employees are well trained and experienced in their areas of specification. The company considers both male and female employees when giving job opportunities, which are then trained to perform different tasks. The human resource takes part in the conversion of raw materials to the final product. It also ensures that quality products are delivered to consumers.

3.1.4 Unique Capabilities

The following are unique capabilities of this company:

3.1.2      Strategic architecture: The Company’s stores are designed in a strategic way that is attractive and appealing from inside and outside. The brand's check pattern in Britain reflects asymmetry at the top of the store with well-strategized millwork and lights (Joy et al.) A mirror reflects over a line that appears invisible and runs through the entire store. Also, all stores are designed and furnished in style to produce a neat appearance that accommodates all the luxury products.

3.1.3      Reputation: The fashion industry sells its image through the provision of high-quality products with standardized prices (Choi, and Li, 2015). It is commonly known for satisfying customers by designing clothing, accessories, cosmetics, and perfumes that meet different needs. The company, therefore, succeeds in maintaining a good reputation to the surrounding company. To achieve a good reputation, it also takes part in corporate responsibility. With this, it ensures that focus is not only put on profit maximization but also in the social needs of the surrounding community, hence, promoting social responsibility.

3.1.4      Innovation: Burberry is highly favored due to the feasibility of employing young talented and skilled personnel. Because of this, the company is exposed to a range of ideas concerning the trending fashion (Park, and Youn, 2016).  Precisely, high levels of creativity are employed in the invention of a variety of clothing design, as well as producing different scents of fragrances that target both male and female. The trench coats are produced in different colors, thus, providing a wide range of alternatives to consumers.

3.1.5      Application of the value chain: The value chain is applied during product design to convert inputs to outputs. In other words, the operations carried out to involve the use of resources to produce the final products (Mol, 2015). The products undergo transformation processes through consumption of resources in the form of money, equipment, materials, or labor to give out well-designed clothing, perfumes, and other products. The final product is produced after it has undergone many modifications to achieve the expected design.

Fasse, Grote, & Winter (2009) explain that the performance of a value chain can enhance the profitability of a given firm. Burberry has been able to adopt and apply the value chain for not less than ten years. This concept has consequently enabled the company to reduce the cost of transportation, a general reduction of material costs, a minimization of the cost of handling, and reduced cost of distribution. Furthermore, Burberry’s value chain have enabled the entity to improve its delivery time, generate a reduced lead time, improve its performance on delivery and improve its accuracy of information.

3.2 Links to Advantages

3.1.6      The VRIN advantages: The VRIN framework encompasses factors that promote a competitive advantage for the company. By use of this framework, it is easier to determine if the resources within a company can be converted into sources. VRIN, therefore, stands for valuable, rare, inimitable, and non-substitutable resources. The resources in the company are identified as valuable since the company highly depends on them to attain a certain level of profitability (Zozulya, 2015). Employees are valuable resources, and the company cannot do without them. Similarly, the company relies on rare resources that can hardly be accessed by competitors. Products produced by Burberry are unique and cannot be imitated by similar producers like Gucci. Moreover, due to the production of unique products with high-quality standards, the company stands a chance to overcome substitution of its products.

Certain factors determine the existence and growth of Burberry, giving it the authentic identity on the global market (Zozulya, 2015). They include the powerful social media marketing, the reliability of industrial assets, convenient methods of storage and transportation, availability of international laws that encourage market globalization, and obviously a real “commitment to the places and communities”, “commitment to the Company” of directors, Board and Committee, and to their roles, which are manifested in the company’s Strategic Report (Burberry Group plc, 2018). The industry uses the social media platform to market its products and target different classes of consumers. Owing to the current changes in the market, there are diverse customer needs that should be covered in the fashion business. For instance, today people are keen on the upcoming styles and designs for both clothing and accessories. In response, the company distributes items responding to a variety of trends to meet the complex needs of the customers. Table 1.3 (VIRN Table)

3.1.7      TOWS matrix: To identify the company's strategic options, TOWS analysis is required. TOWS matrix is simply the reversed form of SWOT analysis (Kim, 2016). With this matrix, the environment is scanned to determine threats, opportunities, weaknesses, and strengths of the company, including the controversial questions in ethics. Table 1.2 shows TOWS matrix (see appendix 1)

4.0 Evaluation and Improvements

As stated earlier, Burberry faces a strategic relating brand loyalty. Through the effective implementation strategies, this issue can be addressed appropriately (Phan, Thomas, and Heine, 2011). For instance, Porter’s Generic Strategy can be used to respond to the issues as shown below.

4.1          Porter Generic Strategy Framework

Depending on the market share secured by Burberry, it may be possible to determine whether the company’s profitability is below or above the industry average. When profitability is maintained above the industry average, the company is likely to sustain its competitive advantage. As a result, the chain supply wins the brand loyalty from customers (Tanwar, 2013). Burberry is likely to face two types of competitive advantages mainly differentiation or low cost. Cost leadership, differentiation, and focus are the three generic strategies. The focus strategy is further classified into differentiation focus, and costs focus (Table 1.4 Competitive advantage)

In cost leadership, the Burberry focuses on minimizing of costs to minimize losses, while enhancing quality. By doing this, it can maintain customer loyalty through reduced pricing of its products. On the other hand, the firm can deploy differentiation marketing strategy which is based on unique production, making the company overcome competitors. This means that the company will produce a variety of perfumes and complex fashion designs in clothing and other products like cosmetics and accessories (Tanwar, 2013). In differentiation marketing, consumers are attracted by unique products. Focus, as a generic strategy, emphasizes on segment selection of the market. In this sense, a set of products are designed to target a particular group. In cost focus, the segment is targeted and selected based on the product cost. However, differentiation focus relies on a given market segment to provide unique products. This will create appeal to a larger number of clientele.

4.2 Strategy Evaluation-Suitable

Before implementing a strategy, it is important to perform a critical evaluation to determine its level of effectiveness (Kull, Mena, and Korschun, 2016). As much as the strategy may contribute positive results that lead to the accomplishment of goals, it may also lead to negative results if not well evaluated.

4.2.1      Porters Strategy Clock: The strategy is based on how the company treats its competitive scope. Competitive advantages here include lower cost and differentiation. Similarly, there is the broad target and the narrow target. Lower cost market advantage is divided into cost leadership and cost focus (Sah, and Dadwal, 2018). Lower cost focuses on the other hand targets consumers who are in need of products with low prices. By deploying a differentiation strategy, Burberry company produces a variety of products with different prices that accommodate both the middle and the high social class. Differentiation focuses on the complex market in need of unique products.

4.2.2      Bowman’s strategy clock: In this model, various options that are important in strategic positioning are covered. Some of the issues involve how to position a product to give it the competitive advantage (Sam, and Side, 2018). Depending on the product price and the perceived values, positioning may determine its sustainability in the market. Where product price and perceived values are low, it simply means that the product is not familiar to consumers regardless of the low price. Also, it implies that the Burberry has not achieved brand loyalty and a strategy like product promotion through advertisement can be considered.

4.3          Strategy Evaluation-Acceptable

 

4.3.1      Stakeholder mapping: For successful management of a project, systematic processes need to be used. To achieve this, proper stakeholder mapping is required. Stakeholders are part and parcel of organizations, and they need to be included in all organizational operations. They may influence the outcome of the project by contributing different constructive ideas. For effective mapping of stakeholders, it is necessary, to begin with identifying the stakeholders present in the organization (Bourne, 2016). After identification follows analysis to determine the exact positions that they hold in the organization, in addition to their interests and expectations. The next step is prioritizing, where all the stakeholders’ needs are addressed. Eventually, stakeholder engagement is encouraged.

4.3.2      Mendelow’s matrix: Burberry Group PLC can use this matrix to examine the attitude of stakeholders during initiation of projects and when setting strategic objectives. If used appropriately, it serves well in implementing the strategies, leading to the achievement of set goal (Kull, et al, 2016). The matrix consists of four components in which elements examined include the stakeholders’ high interest and high power, high interest and low power, low interest and high power, and low interest and low power. With this, the stated strategies can be implemented successfully, knowing the stakeholders level of interest. Table 1.2  shows Mendelow’s matrix including the four levels of interests and power expressed by stakeholders ( (appendix 2).

The power is vested by the management and board of governors who are responsible in introducing and implementing new changes within the organization in line with the set objectives. The interest of the stakeholders including investors, customers, the public and employees also need to be considers as they can affect the company in one way or another. If a specific initiative for instance harbors low interest among investors, and customers, then there would be no need of proceeding with it. On the other hand, if a specific initiative has high interest among customers, then the management will see it viable to proceed with it.

               

 Feasibility

Following the evaluation conducted, Porter’s strategy clock and Bowman strategy clock are feasible for addressing the issue faced by Burberry (Zozulya et al, 2015) Through Porter’s strategy, Burberry will identify the market segment to target and why the segment is of interest. For instance, through differentiation focus, Burberry will concentrates on the market segment to provide unique products. Similarly, in cost focus, the company emphasizes its marketing activities on a segment to provide products of a given price range. Bowman’s strategy positions the product, thus, securing the market share. As it identifies values, it can adjust the price depending on product awareness. In turn, this leads to the promotion of consumerism and brand loyalty.

As Burberry designs its fashion products, the focus is based on the final consumer. The management ensures that their human personnel are skilled and attractive enough to address all aspects of quality and encompass collective customer needs (Wehrmeyer, 2017). However, this may pose a great challenge, especially due to the currently changing market trends and advanced technology. Market trends may include changes in customer needs, demographical changes, fluctuating prices, variations in the economy, and social factors. Therefore, Burberry is exposed to the key of issue of maintaining customer loyalty due to the dynamic and changing market environment.

Suitability

With the available resources like skilled personnel, good financial status and many stores that are distributed globally, the company can gain confidence in the competitive market. Therefore, the strategies are suitable for the company’s progression. While focusing on intensive product distribution, customer satisfaction, and profit maximization, the industry needs to look at the impact of its operations on the general environment. To facilitate this, Burberry has to step up its response to corporate responsibility. This is also an important step in attracting brand loyalty

Acceptability

By utilizing the available resources in the business efficiently and taking full advantage of the competencies, strategies, and goals of Burberry can be obtained. Further, the company management is ready to exploit the available mechanism of improving the brand. Brand’s changeless loyalty is identified as a strategic issue in Burberry. Therefore, the management is required to address it critically to achieve a set of goals. In this case, management must defend its brand to maintain customer loyalty. Failure of the supply chain to deliver according to the set standards has led to the overall decline of the brand. Moreover, there are several variables that need to be constantly monitored to ensure that customers are loyal to the brand (Park, and Kim, 2016). The variables include constant product supply, quality, and customer engagement. For instance, the company has to update its inventory levels on a regular basis to assure consumers of continuous supply and avoid product shortages in the market.

 

5. Conclusion

Burberry operates in the modern market where consumers are cautious of what they wear. With the highly demanding market, many luxury fashion industries have emerged to deliver the complex consumer needs. Because of this, Burberry needs to make more effort to ensure that it overcomes the intensive competition and address the issue of declining loyalty. By implementing proper strategies, the company is capable of reacting appropriately to the issue and the diverse changes in the environment, thus, gaining a competitive advantage. A fully capable of innovation and effective self-promotion, the legendary brand Burberry established with success the company’s firm principles of business and reliable provision of the best experience for those wearing this brand.

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