Esprit Company: Business Strategy

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Competitive Profile Matrix

		Bossini		Gap		Zara
Critical success factors	Weight	Rating	Score	Rating	Score	Rating	Score
Adv and promotion	0.10	2	0.20	2	0.20	2	0.20
Product quality	0.15	1	0.15	2	0.30	3	0.45
Price competitiveness	0.10	3	0.30	2	0.20	1	0.10
Brand image	0.10	1	0.10	2	0.20	3	0.30
Customer loyalty	0.10	1	0.10	2	0.10	2	0.20
Sales distribution	0.15	3	0.45	2	0.30	1	0.15
Customer service	0.15	2	0.30	2	0.30	2	0.30
Global expansion	0.15	1	0.15	2	0.30	3	0.45
Total	1.00		1.35		1.90		2.15

Esprit is chasing Zara and heading Gap. Competitive analysis should be between Gap and Zara.

According to the figures shown in the Competitive Profile Matrix (CPM), the total score of Gap is 1.9 while that of Zara is 2.15. Areas for improvement in strategic planning should include.

Esprits should expand globally. Its markets at the moment include Germany, Europe, Asia Pacific, North America. Germany should not only be the major market. The awareness of its brands should be improved because there is so much competition in the market. Research and development are very necessary for North America to determine why it is the smallest segment of Esprit and why it contributes only 4% of total international sales. Pricing strategies should be sought to determine why its products are facing stiff price competition. The different cultures’ fashion trends need to be determined. The focus should not only be on New York or Los Angeles but should also target other cities and states. Esprit’s products should be able to meet the lifestyle demands of young people because they prefer European/German products. Esprit should take advantage of economies of scale in the Asia Pacific due to the strong economic growth. Expansion of Esprit market should be in Italy and Spain. The brand image by Esprit needs to be made better.

Esprit’s products should be able to match with customers/clients’ attitudes. The research will be necessary to determine the tastes and preferences of customers all over the world. Products should have a brand image that is attractive so that more sales can be achieved, more market values acquired and earnings per share will also be improved. Esprits casual should be of designer quality for the young. Clothing should match with personality and people should be in Esprit brands that are attractive and showing styles. The need for making the brand name image to be positive is necessary. The quality of brands should match with price and right fitting. The brand image should also be impressive to the middle age and the learned. Hong Kong people are not ready to spend on brands that can not be valued and are ready to spend more on high-quality brands. This could be the season as to why Esprits is losing its market share to Zara. Edc should also target other body shapes apart from the petite size.

The Quality of Esprits products should be advanced: With changing socio-cultural trends and the increase in the number of people in Asia, quality should be matching with customers’ needs. Esprit’s poor quality of products may be contributing to excess competition from Gap and Zara.

External Factors Analysis

External Factor Evaluation (EFE) Matrix

Other negative macroeconomic factors0.2700

Opportunities

Opportunities	Weight (∑ = 1)	Rating 1-4	Weighted score
Ethic and quality awareness	0.08	3	0.24
Brand extension on edc	0.10	4	0.40
Move to the upper brand fashion grade market	0.10	3	0.30
Develop quality fashion	0.10	3	0.30
Total: 0.38 1.24

Threats

Threats	Weight (∑ = 1)	Rating 1-4	Weighted score
Rivalry (existing competitions, low entry barrier, online shopping)	0.1	2	0.20
Declining childbearing rate (change in the ratio of young generation)	0.05	1	0.05
Bargaining power of customer (high alertness on pricing, product quality, fashion trend, and choices)	0.20	2	0.40
Total: 0.62 0.65

David F.R. (2006)

Overall speaking, Esprit’s performance in reacting to the external environment is a little bit above average 1.89. According to the subtotal score calculation; opportunities have a weighted score of 1.24 and threats 0.65. Apparently, the company is utilizing more efforts to capitalize on its opportunities rather than to deal with the threats that they are facing.David F.R. (2006)

Areas that the management needs to focus on are:

Rivalry: Esprits should also consider doing business on the Internet in order to deal with current competitors and lack of entry barriers threats that have lead to over flooding of the markets and Esprits products are not being considered.
Change in ratio of the young generation: People are not bearing kids as before and product lines for children’s commodities may shut down due to lack of market. Products should be made in such a way that they can fit all age groups.
Bong aiming power of customers: Esprits selling neat, affordable luxury goods and coming up with new products that are stylish. Prices should be fixed to avoid reductions. Their products for women, children, and men should not have bargain-able options.

Internal Factor Analysis

Internal factor evaluation (IFE) Matrix

Strengths

Strengths	Weight (∑ = 1)	Rating (1-4)	Weighted score
Brand image	0.15	3	0.45
Customer loyalty	0.10	3	0.30
Total: 0.25 0.75

Weakness

Weakness	Weight (∑ = 1)	Rating (1-4)	Weighted score
Low advertising budget	0.10	2	0.20
Sales distribution	0.20	2	0.40
Other negative microeconomic factors	0.45	0	0
Total: 0.75 0.6

The overall score of Esprit internal factor evaluation is 1.35 and weaknesses is a little bit better (above average).

In terms of breakdown, score Esprit performs much in building strengths. (0.70,55% of the total score) rather than dealing with its weaknesses (0.6, 455 of the total score).

The management should focus on:

Marketing Esprit products more and this will call for a high budget for advertising expenses and research to determine customers/clients preferences. Esprit should have other marketing branches outside Hong Kong because it is a global company. The supply network should also be modified and advanced to ensure high market value and hence the Esprit value.
Esprit collection for the upper class that is those who need professional new wear; if marketing is good enough sales will generate funds enough to fund other capital investment programs.
Sales should be advanced and improved in order to increase the company’s market value. High turnover brings about high-profit margins and this increases the earnings per share resulting in a market leader position in the industry.
In strategic planning, the idea is to deal with microeconomic factors, which are within Esprit control. These factors affect the Esprits Company regardless of other players in the industry.
Returns should be maximized at a low cost to improve profitability. Strategic planning will also relate to taking advantage of all possible economies of scale in order to have a comparative advantage and to avoid opportunity costs. The brand image and customers loyalty should also be improved to ensure that clients/customers for Esprit are maintained to the disadvantage of competitors.

SWOT Analysis

	STRENGTH (S)	WEAKNESS (W)
	Brand image Customer loyalty	Low Advertising budget Sales distribution Other negative microeconomic factors
OPPORTUNITIES (O) Ethnic and quality awareness Brand extension on edc Move to the upper brand fashion grade market Develop quality fashion	So strategy (Aggressive) Revitalize the Esprits collection and Esprits casual Put more marketing efforts in Germany, Europe, North America, South Pacific By using a strong brand image Esprits can crease sales volume. Provide different kinds of Esprits products	No strategy (conservative) Employ/hire more overseas labor in Germany, Europe, North America, and South Pacific to achieve the cost leadership strategy Provide special discounts for Esprits products (edc) in North America and Europe. Design differentiates Esprit products lower bargaining power of customers.
THREATS (T) Rivalry (existing competitions, low entry barrier, online shopping Declining childbearing rate (change in the ration of young generation) Bargaining power of customers (high alertness on pricing, product quality, fashion trend, and choices Other negative macroeconomic factors	ST strategy (competitive Differentiate the Esprits collection and Esprits casuals Create various special Esprits products (edc) for different age groups. Enhance Esprits quality in Europe, North America, South Pacific, and Germany. Sophisticate gifts on Esprit’s products to make purchases more productive	WT strategy (defensive.) Hire part-time or contract workers in Europe and North America. Give more training to Esprit’s workers in order to increase their skills and knowledge. Invite models to advertise their clothes. Put more Research and development t develop a new strategy to cope with high demand in Gap, Zara, Bossini

These are microeconomic factors facing Esprit and macroeconomic factors facing the industry and market that Esprit operates in. Microeconomic factors in this case will be Esprit’s strengths and weaknesses while macroeconomic factors will be opportunities and threats in Esprit’s industry or business environment.

Esprit’s strengths should take advantage of available opportunities. Esprit should make use of these opportunities to minimize its weaknesses. Esprits strengths should be used to overcome the threat in the industry while weaknesses should be dealt with to avoid future threats. Strengths, weaknesses, opportunities, and threats (SWOT) analysis is the foundation for strategic planning because it helps to come up with programs and investment decisions for the company to be successful in the long run.

Ethics and quality awareness in Hong Kong should facilitate Esprits brand image. The beliefs and culture of the Hong Kong people should enable the marketing of Esprits goods and services.

Brand extension on edc enables customer loyalty because customers need to be faithful to what they believe in.

Hong Kong people are moving to the upper brand fashion grade market, which means that more customer loyalty will be enabled.

Esprits strategic plan should be to take advantage of developed quality functions to build on its brand name and increase sales.

Due to the Ethics, quality awareness in Hong Kong. Esprit’s budget for advertising should be improved. Brand extensions on edc should enable more sales through advanced and network sales channels. The move to the upper brand fashion grade Esprit should deal with the problem of lack of sales distribution. Due to the development in quality fashion, the advertising budget should be increased to attract more customers/clients to Esprits products.

Rivalry, which is a negative macroeconomic factor, can be dealt with by the positive brand image. Competition brought about by other companies in the industry can be reduced because the brand image has so much value due to its packaging which improves its outcome. The industry/ business environment has low barriers of entry increasing the number of firms producing similar products. David F.R. (2006).

Declining childbearing rate should not affect the company sales due to the enormous customer’s loyalty and faithfulness and thus by customers for the Esprits. Change in the ratio of the young generation has had a negative implication on the company’s market value.

Purchases of Esprit causal and Esprit’s collections are highly alerted on pricing, product quality, fashion trend, and choices should not reduce the Esprit’s sales because of the brand image and customers loyalty. Esprits products have been in the market for a long and have a good public image.

Esprits should improve its advertising budget and improve marketability to deal with strong rivalry from existing competition due to low entry barriers and online shopping which has lead to flooding in the market.

World markets in Europe, South Asia, and North America, and Germany should be enhanced through good research and development programs to match with the declining childbearing rate due to the changes in the ratio of the young generation.

The threat of bargaining power of customers due to high alertness or pricing, products quality, fashion trend, and choices can be dealt with with a strong strategic plan. Esprits should be focused enough to determine the long-term implication of low advertising budget and lack of adequate and sufficient sales distribution.

Strategic planning by Esprit should ensure the success of the company by considering and dealing with all the microeconomic factors given that macroeconomic factors exist in the industry and may hinder Esprit’s success. Threats and weaknesses work negatively on Esprit’s performance. Strength and opportunities are the advantages of the company and should be made use of. David F.R. (2006).

Quantitative Strategic Planning matrix

Important factors, alternatives strategies, their aggregate values, the impressiveness of score, total impressiveness, the sum total of impressiveness score are all relevant: These include:

Listing opportunities, threats, strengths, and weaknesses should be on the life of the quantitative strategic planning matrix.
Weights assigned for Esprit’s Strengths, weaknesses, opportunities, and threats are: Opportunities sum up to 1.24, Threats equal 0.65, Strengths equal 0.75, weaknesses equal 0.6.
Determining impressiveness scores: These are the values indicating the relative impressiveness of every strategy. Every major external and internal factor at a given time should be considered to enable a comprehensive evaluation of the strategic plan to be taken by the company to improve Esprit’s market value in the long run. Questions to be asked, whether their factors affect strategy to be made. In case its true strategies are compared to the major economic and financial factors which include, strengths, weaknesses, opportunities, and threats. Impressiveness scores are 1 for not impressive, 2 for somehow impressive, 3 for reasonably impressive, and 4 for highly compressive. If it is not true, then they don’t affect the strategy to be chosen.
Computation of total impassiveness scores. This gives the relative impresses of every alternative strategy. The more the total impressiveness score shows more impressiveness of strategy.
Computation of sum total impressiveness score.

Long Term Objective

A strategic plan involves coming up with programs and putting up systems to ensure that Esprit succeeds in the future and sticks to the going concern principles to perpetuity or the unseen future. Current Esprits strengths, weaknesses, and existing industry/market and business environment opportunities and threats should be dealt with at present. Esprits is experiencing a strong brand image, customer loyalty, a low advertising budget, low sales distribution, and other microeconomic factors. Esprit operates in an industry that has ethics and quality awareness, brand extension on edc, customers are moving to the upper brand fashion grade market and development of quality fashion is in place. Other players in the fashion and design productions are giving revelry due to competition, low entry barriers, and online shopping all causing flooding of both causal and professional wear. The childbearing rate is also going down and the young generation is changing every day. Customers’ bargaining power is high due to alertness pricing awareness on product quality, a fashion trend, and choices. David F.R. (2006).

Broad objectives

Esprit should have a thorough understanding of the areas that it needs to continue operating. Esprit has a market in Europe, Asia Pacific, North America, and Germany where the headquarters are located. Esprit’s mission and vision are carried into real actions and objectives and later to goals that need to be realized. Objectives are wide and should cover using strengths to take advantage of existing opportunities, dealing with weakness by making use of opportunities, the threats in the market can be countered by the Esprit’s strengths and its strategic plan should mainly be centered on neutralizing current weaknesses to avoid future threat in the Hong Kong market. Stockholders, third parties, auditors, and Esprit are all worried about the company’s future given that the image and opinion by stockholders determine the funds available for funding investment and other capital-intensive projects.

The long-term objective will be, not dated, continuous, and nonmeasurable. Objectives initiate action. Esprit’s objectives should drive the mission statement as presented to shareholders, third parties, regulators, and customers for the Esprits collection and Esprit’s casuals.

Esprits should expand sales for Esprits collection and Esprits casuals to the current customers given the strong brand name.

Esprits management should consider introducing current products into a new market in some places all over the world as a strength given that it can claim customer’s loyalty. Given the current competition (rivalry), strong bargaining power, low advertising budget and lack of adequate and sufficient sales distribution the market department in Esprit should develop a strong research and development plan to come up with creativity and innovation to boost Esprits market value.

Financial objectives

Given the unmatched competition in the market, declining childbearing, and change in the ratio of the young generation high bargaining power of customers, Esprit should have financial objectives focused on gaining high profitability in order to be in line with its mission/vision, company’s perpetuity or the going concern for the Esprit. The financial objective, in the long run, shows a commitment to providing admirable cash flows, credit relationships, high earnings per share, good returns on employed capital investment, growth on dividends to shareholders, and improved stock prices to provide funds and finances for capital investments. Markets in Germany, the South Pacific, North America, and Europe should be diversified to increase the revenue of the company. To financially survive, revenue or returns should be increased or maximized at the lowest cost possible for the given financial year.

Strategic market goals

Esprit has been experiencing a lot of competition from other companies in the industry. The marketing objective should enable the company to sustain and increase Esprit’s competition strength and together with long-term market position by creating customers value and improved firms value.

The idea here is to win more market share by dealing with the issue of rivalry.

Long-term internal objectives

Esprit should aim at its strength and weaknesses to ensure its internal success. These are the business process factors which have an effect on improving the firm’s value and customer’s satisfaction in Germany, South pacific Asia, North America, and European nations. Esprit’s management’s goals should focus on operating a critical functional activity.

Esprit’s efforts should target advertising and marketing, customers care, financing, human capital, strategic major activities, and sales distribution manufacturing functions.

Esprits front line organizational units within a business should be organized for long-term survival. Input purchases, stock control, holding and maintenance, shipping to the various markets are all factors of consideration. David F.R. (2006).

Reference

David F.R. (2006) Strategic Management Concepts and Cases 11^th Edition pg. 4 – 407. Prentice Hall. New York.

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