Abercrombie & Fitch - Proposed Marketing Strategies

Abercrombie & Fitch

MARKETING IN DESIGN – ASSIGNMENT 3 MARKETING STRATEGIES

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BEATRICE SIM [12040731I] BRYAN YEO [1201168J] DYLAN CHNG [1202143B] SANDRA YEO [1203158I] WONG WAN WEN [1203478A] XARIA KWA [1204329E]

DIPLOMA IN APPAREL DESIGN & MERCHANDISING YEAR 1 SEMESTER 2 BLOCK 1 MARKETING IN DESIGN DPS 1021 ASSIGNMENT 3 – MARKETING STRATEGIES

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CONTENTS

1. INTRODUCTION

2. COMPANY PROFILE

3. MARKETING STRATEGIES A. ATHLETICS B. FRANCHISING C. WELFARE

4. CONCLUSION

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INTRODUCTION This report will deal primarily with the suggestion of three marketing strategies that Abercrombie & Fitch can adopt. These strategies, through research and study, have a high potential to benefit Abercrombie & Fitch greatly in terms of business. Following the introduction, a brief description of the company profile, and then immediately the recommended marketing strategies are introduced. Preceding each of the strategies is a brief analysis of the related problems faced by the company; the strategies listed are both methods of improvement and innovative suggestions. These marketing strategies are divided into three main points: A) focus on athletic branding; B) expansion via franchising; C) high-profile welfare work. These points will be discussed in depth in their respective sections. Finally, a concluding summary and assessment of our recommendations will be made.

COMPANY PROFILE Summarily, Abercrombie & Fitch Co. is a United States company incorporated in 1996. They are a specialty retailer of casual apparel (marketed as luxury casual). They operate stores and perpetuate direct-to-consumer efforts through the four subsidiaries: Abercrombie & Fitch, abercrombie kids, Hollister Co. and Gilly Hicks. Each subsidiary bears the trademark styles of the parent corporation, and a highly similar style of marketing and branding. Each subsidiary also operates a website linked to the others. As of 2011, Abercrombie & Fitch have 1,045 internationally.

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MARKETING STRATEGIES This section of the report discusses in three separate parts marketing strategies which we recommend Abercrombie & Fitch adopt. These are namely A) focusing on athletic rebranding, B) expansion via franchising and C) developing prominence in welfare efforts. Each strategy is generally explored through some or all of the following points, though they may not necessarily be in this order: 

strategy,

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rationale,

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current relevant marketing problem,

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assessment of potential,

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methods of execution,

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successful case study,

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benefits,

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drawbacks, and

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recommendations

This comprehensive take on explaining the suggested strategies allows for a full assessment of their strengths, weaknesses and potential.

ATHLETIC BRANDING There is a potential for Abercrombie & Fitch to enter the sports industry in its own way due to its strong athletic imagery, particularly drawing from earlier promotional materials, as well as its specific target clientele.

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Strategy We recommend Abercrombie & Fitch to market itself through sports–related efforts by reverting to the brand’s beginnings in sportswear and place stronger emphasis on these athletic values in a twopronged approach that involves sales of sporting goods and event sponsorship.

Rationale This strategy would place prominence on Abercrombie &Fitch’s athletic roots and also allow it to enter a new but relevant market, simultaneously expanding their consumer and clientele base. It would deliver the notion of athleticism promised by several articles of their promotional material (particularly in earlier examples) which would mean stronger brand integrity.

Example of A&F’s use of sports such as American Football in A&P It would likewise be able to capitalise on the immense sports industry (see Assessment below for details) while revamping the brand image with the abovementioned element of athleticism.

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Problems Abercrombie & Fitch’s current selection of merchandise is incongruous with its projected image: the brand’s extensive use of American sports in their promotional media implies rigorous athleticism. This is not reflected in its range of products, which currently do not include performance sportswear and indeed are limited to various articles of versatile casual pieces like sweatpants. Consequently, a disparity is created, rendering part of Abercrombie & Fitch’s brand image undelivered.

Assessment The global sports industry has been valued at €350 billion to €450 billion (A.T. Kearney). It is a multifaceted industry consisting of such sectors as infrastructure construction, sporting goods, licensing and events. Our strategy involves sporting goods and events.

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Considering its market value, it can be inferred that the sports industry has a high consumer potential which Abercrombie & Fitch can tap in. Similarly, there exists a demographic overlap between the average consumer in the sports industry, and Abercrombie & Fitch’s current target market of youths aged 18 to 22. A large number of consumers in the sporting industry would fall into this age group, a fact attributable to the prevalence of sports as part of daily life among modern youths.

Execution Capitalising on the sports market through this recommended strategy involved two separate efforts: 1) Initiate the developing and selling of sporting goods. Bringing in a range of sports-related products relevant to the brand (eg. performance wear for wrestling or American Football – sports used by Abercrombie & Fitch in promotional media) would cater to and target the sports market. Simultaneously advertise and promote based on athletics in tandem with the 8

introduction of sporting merchandise. Ensure that luxury branding and the Abercrombie & Fitch brand value remains consistent in sportswear. 2) Begin sponsoring sports events relevant to Abercrombie & Fitch, like American football and wrestling. Concurrently capitalize on the growing coincidence between sports and lifestyle. Sports has become integrated into people’s everyday life. For example, the Super Bowl XLV played in 2011 became the most-watched American television program in history, drawing an average audience of 111 million viewers. There is a large potential in advertising to this demographic: statistically speaking there will be a substantial number of viewers who are worth promoting to.

Case Study On sponsorship, an evidently huge success is Adidas, who sponsored the 2008 summer Olympics. This act allowed the company to see an increase in profits due to the increase of sales by 15%.

Excerpt from the Wall Street Journal article

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Benefits A&F would enhance its brand integrity by delivering on a promise it makes. They can also tap into the luxury sports market which could potentially overlap with Abercrombie & Fitch’s own current target market. Likewise, there is a beneficial diversification of Abercrombie & Fitch’s range of products, equating to a wider consumer base and more opportunities for the company.

Drawbacks There are a number of sports retailers which have managed to build a name for themselves and if Abercrombie & Fitch break into this industry, it may take them quite a while to develop as prominent a presence in it, as consumers would prefer buying from these more reputable retailers. There would also be a limitation in terms of the variety of sports equipment they can sell—and by extension their new target market—due to the fact that the brand is primarily associated to wrestling and American football (which is most prominent in the US), and thus will not appeal to the global consumer base.

Recommendations To possibly remedy these issues, Abercrombie & Fitch can introduce sporting merchandise gradually to begin its new appeal within its current consumer base, and from there expand. They could also begin to include more sports in their promotional media and widen their athletic association, which would thus allow a vaster potential range.

EXPANSION VIA FRANCHISE Abercrombie & Fitch Co. could potentially expand their reach internationally and appeal to a wider consumer base by opening franchises in countries that have a huge market potential based on such factors as a novelty effect and specialisation in the specific countries. 10

Defining Franchising: Authorisation granted to a third-party entity to sell a company’s goods or services in a particular place Franchising is the practice of using, with permission, another firm’s successful business model while not being subjected to the liability of opening chain stores. Simply put, franchising allows an established company to open stores managed quasi-independently by franchisees, allowing the parent company to benefit from the profits made by their franchises without having to step in and micromanage.

Strategy Our strategy involves two main parts: 1) franchising (as described above) and 2) doing this especially in countries that Abercrombie & Fitch have never opened in before.

Rationale Benefits of Expansion The benefits of expanding to new markets are rather simple: the introduction of a brand into a market in which it has never debuted before means an element of novelty that can work to the company’s advantage. This is particularly true for Abercrombie & Fitch precisely because of its marketing strategy and brand image. While its risqué and highly Americanised image may have worn in terms of consumer captivation in such regions as North American and Western Europe, it may very well carry the value of shock and novelty in less exposed regions like Asia or even certain regions of Eastern Europe. For example, Abercrombie & Fitch’s opening in Singapore in 2011 saw a rather dramatic response (positively and negatively) to its promotional material and methods of marketing, particularly towards its suggestive billboard placed in the Orchard district. This is attributable to how Singapore is fairly conservative, relatively speaking, and thusly by extrapolation speaks volumes of how various new markets would react to the brand. 11

Benefits of Franchising The benefits of franchising are numerous: 1) Faster growth can be achieved with lesser work than simply expanding without a franchisee. Trusting a third-party to open and manage a store independently from the parent company (whilst still maintaining strongly and obviously maintaining the company’s established ethos) eliminated the need for the parent company to further divide its resources to support the stores. 2) Similarly, franchising utilises the franchisees’ capital and network, which means that the parent company will not need to expend excessively high costs, and can capitalise on this new network of contacts. 3) External funding likewise means that the parent company will not need to pour a high amount of money into the opening of franchises because of external investors and franchisees’ capital. 4) Franchises are self-motivated. This attribute comes from the two points described below. Firstly, the franchisees’ own money is at stake – if the store fails, the franchisee suffers. Secondly and conversely, any action that benefits the parent company will be taken because this beneficial effect is echoed in the franchise itself. For example, individually increasing brand awareness and loyalty benefits both the parent company and the franchise in terms of sales. These points, and by extension the concept of franchising, can be a more efficient manner of introducing individual stores’ responsibility and improving sales methods because the ideas of incentives and deterrents are introduces: the consequences of the franchisees actions will affect them directly; employees do not have this same motivation. 5) Engaging franchisees local to the market the parent company wishes to expand to means there is a well of contextual knowledge and understanding of the local market and likewise means knowledge of how to tailor the brand to sell better there. Engaging a variety of franchisees (internationally) also means the pool of ideas for improving the business increases. 12

Problems Currently, on a global scale, Abercrombie & Fitch’s store distribution is relatively limited. Its stores are focused mainly in the North American continent, Europe, and a few regions in Asia.

Although they are attempting to expand into China, there are still many more potential regions for them to expand into, for example South America and India (these two will be elaborated on later as two examples of the many possible future markets).

Assessment For the purposes of this report, we have chosen two out of the many possible markets around the world to elaborate on so as to give a concise view on what kind of markets we think Abercrombie & Fitch could succeed in, as well as these markets’ climates and potential. South America Firstly, South America’s booming population, projected to exceed that of China’s in the future, means that there is a potentially large future youth market which Abercrombie & Fitch could tap to their advantage. 13

South American population projections

South America population pyramid: indicative of large future youth market

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This growth in population is complemented by a similarly expanding retail market, stemming from the aforementioned potentially populous consumer base as well as an increase in average buying power.

Studies have revealed that South American countries’ buying power is charging ahead with rather substantial increments. This increase in purchasing power could very well be translated into increased profit for Abercrombie & Fitch. India By 2025, India’s population (currently standing at 1.22 billion) would surpass that of China’s. This would imply a potential for Abercrombie to target to the immense youth market in the near future (statistically speaking).

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Charts illustrating India’s growing population India is also a culture in which a very distinct and strongly enforced caste system is still existent today which naturally means that status symbols and representations of wealth are going to be important to the rich.

The 56% growth of luxury stores in India signifies a developing sense of brand awareness in the expanding number of India’s high-income households.

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Execution South America Our suggestion for opening a franchise in South America is to focus therefore on hard-selling this concept of the Southern Californian (SoCal) representation that is prevalent in subsidiary Hollister. For example, the opening of the franchise could involve campaigns that relate the South American beach culture to the SoCal beach culture, which would appeal to the largely coastal South American Demographic.

Hollister Co.’s SoCal image (left) and South American beach culture (right) India India’s market potential lies in statistical and social facts.

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In this respect, Abercrombie & Fitch could ramp up on their method of marketing themselves as luxury goods and appealing as an established brand for the targeted demographic to associate themselves with; using A&F as an indicative of their monetary privilege and status of affluence. When entering the Indian market, if Abercrombie & Fitch can accurately portray themselves to be with other juggernaut brands in the luxury goods market, they will be able to appeal to the rich Indian market, who are concerned with exclusivity, price and who “buy goods based on social recognition”.

Case Study

Excerpt from article on AME Info online American Eagle Outfitters, one of Abercrombie & Fitch’s main competitors, has successfully franchised its business into the Middle East, and by partnering with M.H Alshaya have been able to produce a substantial flow of revenue and a growing presence of the brand, opening 18 stores in the region to this date.

Drawbacks By franchising its business out to third-party entities, especially overseas (relative to the United States), Abercrombie & Fitch places itself in a precarious position. This style of doing business, although profitable and less taxing on the parent company, has shortcomings in that brand integrity may be corrupted by franchisees who do not adhere to the parent company’s requirements and styles of business and marketing. 18

This is particularly true for Abercrombie & Fitch who has for as long as their current incarnate existence been tailoring a very specific and targeted image for themselves. With external individuals or companies stepping in to manage overseas franchises, the non-adherence to design and in some cases breach of contract, or even diluting brand value by devaluing products through altered prices, therein lies a threat. By revealing the way the company manages its business, Abercrombie & Fitch with their specially tailored style of business render themselves vulnerable by exposing its trade secrets and unique identifying elements. These concepts and ideas could easily be copied by franchisees. Bad reputation from poor franchisees could also be another threat as the actions of the franchisee’s staff or the franchisee itself would be linked to Abercrombie & Fitch by virtue of their partnership.

Recommendations We recommend that, should Abercrombie & Fitch wish to pursue franchising as a strategy, the company should ensure that their guidelines and requirements are strictly followed by the promise of legal action should the alternative ensue. This can be managed by their legal team. We also advise that instead of revealing styles and strategies in design to franchisees when setting up stores, they could persist in using their own designers and visual merchandising representatives who will be personally in charge, thus keeping their unique identity a confidential element.

WELFARE EFFORTS Currently there exists an ongoing effort by Abercrombie & Fitch called “A&F Cares” which advocates such principles as diversity (in culture and race), philosophy, and sustainability. This last marketing strategy aims to expand on this substantially to re-imagine Abercrombie & Fitch’s corporate social responsibility and the direction which it takes.

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Strategy The strategy proposed focuses primarily on charity, where we recommend Abercrombie & Fitch contribute and work closely with charitable organisations in order to raise money for the needy. This thus would expand on the A&F Cares efforts.

Rationale Ethically, this strategy aims to expand Abercrombie & Fitch’s current somewhat limited charitable effort, and in the long run, do good for the global community. From a marketing point of view, this strategy would emphasise on their charitable relations to promote the company as socially conscious, and through this, appeal to community welfare and consumers prone to charity through goodwill, and therefore potentially boost sales as a result.

Problems Abercrombie & Fitch currently does charity work that is very low profile. A majority of their efforts take place in the locale of their corporate headquarters, which means that on an international scale, their work goes largely unknown, instead overshadowed by the company’s other aspects.

Case Study, Execution & Benefits Macy’s “Thanks For Sharing” campaign, currently in its tenth year, has donated a total of USD95million to various charities. In just 2011 alone, the campaign managed to raise USD15million to benefit charities. Their efforts have seen a unification of efforts between customer and company, where for every USD25 enrolment into the program, Macy’s donates USD10 up to USD15million. This campaign also capitalises on the US holiday shopping season, where the campaign is most promoted, and indeed in full-swing.

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Excerpt on Macy’s charity efforts This manner of fund-raising–capitalising on festive seasons and their subsequent spirit–would allow Abercrombie & Fitch the benefit of expounding their efforts extremely widely. By using the brand’s value to raise social awareness and contributions, they can easily promote themselves as charitable and good-willed to an enormous audience.

This graph on consumer electronics shopping trends throughout the years 2005 to 2008 proves a known fact that consumer spending drastically increases around the Christmas period. Far from being a phenomenon exclusive to the electronics industry, this trend can be extrapolated to nearly any existing retail industry, not least fashion.

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Capitalising on this increase in consumer spending also means capitalising on increased awareness. In the long run, Abercrombie & Fitch can stand to benefit from a better reputation, as well as improving its appeal to a wider consumer base, namely that of the socially conscious.

Drawbacks Although this may seem like a valiant and praise-worthy attempt by Abercrombie & Fitch to benefit the global community, it may be harmful to the brand in a number of ways. Firstly, suddenly entering a whole image involving high-profile philanthropy may come off to the public as very unlike Abercrombie & Fitch: the brand is not known for its conscious attitude towards social opinions and welfare. Secondly, this may come off purely as a business venture, and give the impression of being a vapid attempt to redeem itself and offset its bad reputation with all of its prior controversies and ensuing lawsuits. This may in fact harm the brand as it creates this image of a company desperate to appeal to more customers, and not at all out of sincerity.

Recommendations To balance the benefits and drawbacks of adopting this strategy, we recommend instead of enacting an entirely new strategy to focus on emphasising the pre-existing A&F Cares efforts, making the strategy seem like a gradual and already in-effect action. Abercrombie & Fitch must also ensure that the company’s ethos remain in line with their strong philosophy. Therefore, they could adapt advertising that is consistent with the company’s prior promotional media, in terms of style and aesthetic, but toned down in terms of thematic imagery (eg. innuendo) so that the focus is on the charitable efforts instead.

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Abercrombie & Fitch should choose charities relevant to their brand image, for example, sponsoring sports scholarships for the under-privileged, thereby keeping in line with their already established image.

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CONCLUSION Summarily, for the first (athletic focus) and third (altruism) strategies we recommend adopting an overall approach involving minimal alteration to their advertising and promotion strategy, whilst vastly altering what they promote. For the second strategy (expansion via franchising) we must stress that mere expansion is not enough, and that the process must be both streamlined in terms of effort and expenditure to increase efficiency, as well as being tailored to best suit the regions they attempt expansion into. For all three strategies, we recommend using extremely high-visibility actions that will expound the brand’s name maximally. Overall, though our suggestions may be drastic steps for Abercrombie & Fitch to take, we believe that if tackled tastefully and in a consistent style, they stand to profit in both the long and short term.

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