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Methodology
The process of conducting this study is based on a qualitative research study. The data used in the study is collected by reviewing different secondary sources such as published industry reports and articles. However, the sources used are reputable to improve the credibility of the data.
Introduction
Donna has identified a market opportunity within the fashion industry. The industry is categorized amongst the most important economic sectors. It is imperative for Donna to use the experience gained while working as a customer service personnel at Myer stores in running her fashion store. The store will specialize in diverse fashion apparels. Donna intends to source the initial working capital from her parents, which will be treated as a loan. Donna will source the fashion supplies from the Chinese and Australian markets to minimize the cost of operations. The fashion store will operate under the business name ‘Divine E’. The operation of the fashion store will be based on a high level of flexibility to align with the market trends.
This report will provide the entrepreneur with valuable insight on the issues that should be considered to gain a competitive advantage in the fashion store. The report is organized into four sections. The first section illustrates the findings and their implications to the firm’s operation. Under this section, an analysis of the external business environment using the Porter’s five forces model is illustrated. The second part outlines the best generic strategy that the entrepreneur should consider. Part three (3) entails a balanced scorecard relating to the company. The last part is a projected master budget for the firm during its next two financial years.
Findings and implications of the findings
The Australian apparel and footwear business is remarkably big. The market is valued at $ 3 billion. The market has become very competitive due to the huge profitability potential. The industry players are increasingly focusing on selling unique fashion apparels to develop a high competitive edge (Donelly, 2015).
Porter’s five forces
Competitive rivalry-High
The degree of rivalry in the Australian fashion market is substantially high. Both large and small entities dominate the market. Some of the large fashion firms that have established stores in Australia include H&M, Zara, David Jones, and Myer. The rivalry emanates from the high fixed cost that characterizes the industry. The large firms have developed economies of scale, which strengthens their competitive capacity (Fashion United, 2015). The high degree of rivalry might affect the ease with which the new fashion store gains a competitive edge.
Threat of entry-moderate
Australia ranks first amongst the Organization for Economic Cooperation and Development [OECD] regarding population growth rate. The current population size is estimated to be over 24 million. Moreover, the per capita spending amongst households is relatively high. These factors increase the attractiveness of the country to investors due to the high profitability potential. Despite the industry’s attractiveness, the threat of entry is moderated by its financial capital-intensive nature. Therefore, a company must have substantial capital to entrench its competitiveness.
Supplier bargaining power-low
Suppliers in the Australian fashion industry have a relatively low bargaining power. The low power emanates from the fact that several large suppliers dominate the industry, which minimizes their monopoly power. Fashion retailers have an option in selecting suppliers depending on the quality and cost of the supply. Thus, suppliers do not have adequate capability to influence the market price. It is imperative for Divine E to establish a strong relationship with suppliers. Furthermore, the decision to source supplies from the local and international market will play a critical role in improving the firm’s competitiveness.
Buyer bargaining power-Low
The fashion market is comprised of individual customers as opposed to corporate customers. Despite the view that customers in the fashion industry are conscious of product quality, they are very price sensitive. However, they do not have substantial power to influence the product prices. The low buyer bargaining power is increased by the absence of corporate customers. This aspect makes the industry attractive for new entrants such as Divine E.
Threat of substitute
The many large competitors in the industry have led to an increment in the number of substitutes available in the market. Subsequently, suppliers have numerous options to select from to satisfy their fashion needs. Divine E should ensure that its products are characterized by a high competitive edge to cope with the threat of substitute. One of the issues that the firm should consider is providing high-quality fashion products.
Generic business strategy
It is imperative for Divine E to target the young, fashion-conscious, and high-end customers given the competitive nature of the Australian fashion industry. The target market should be comprised of both male and female customers. The choice of this market segment will enable the firm to maximize its profitability. Divine E should adopt the differentiation strategy. The firm should offer high-quality products at competitive prices. Moreover, it should source its supplies from well-established and reputable suppliers to attract the quality-conscious customers (Holmberg & Ohnfeldt, 2010).
In its differentiation process, the firm should adopt the penetration pricing strategy by setting the price of its products at a relatively lower price as compared to its competitors. This aspect will allow the firm to achieve price competitiveness. Additionally, the firm should consider integrating the concept of e-fashion. It is estimated that over 48% of Australians had already adopted the concept of online fashion purchasing by the end of 2012 (Olivera & Silvers, 2015). Probably, more customers have adopted the concept given the high rate of Internet penetration. Therefore, this strategy will enable the firm to engage in online marketing successfully, hence increasing the chances of attaining an optimal market position.
Balanced scorecard
Business Perspectives
Divine E should integrate four main perspectives that include financial, learning and growth, customer, and the business process. The company should develop adequate knowledge repository to integrate the learning and growth perspective. This objective will aid in developing a strong competitive advantage. Gaining market knowledge will aid in understanding and exploiting the existing market opportunities. Secondly, the firm should focus on undertaking continuous adjustments to its operational practices. Therefore, the attainment of this perspective will depend on the flexibility of its operational and strategic processes (Govindarajan, 2007).
The financial perspective will enable the firm to be effective in its approach towards financial aspects. Divine E should focus on two main objectives, which entail generating high sales revenue and return on capital to benefit from the financial perspective. By focusing on these two objectives, the firm will differentiate its pricing strategy effectively. Secondly, the firm will assess whether the investment made in the differentiation process culminates into substantial returns.
The customer focus perspective will enable the firm to develop a high level of customer loyalty. On customer focus perspective, Divine E should be concerned with offering high-quality fashion apparels. Moreover, the firm should aim at understanding the customers’ fashion tastes and preferences.
On business process perspective, the firm should focus on attaining two main objectives, which include the integration of cost-effective operational processes and ensuring that the business processes integrated culminate in value creation. The firm should evaluate whether the business processes are effective in delivering the customers’ product and service requirements (Cotton & Fawkes, 2013). This move will play a fundamental role in entrenching repeat purchase behavior amongst the target customers.
Key Performance Indictors
The firm should integrate several key performance indicators to achieve the objectives identified above. First, it should assess the extent to which using new knowledge developed from the market research culminates in an increase the size of the customer base. Secondly, the firm should examine the ease with which it leverages on market intelligence in its operational and marketing processes to deal with market changes. On the other hand, the firm should use the profit margin and rate of return on capital as the key performance indicators in determining its financial strength.
In evaluating its effectiveness in delivering customer focus, the firm should examine the customers’ rating on the quality of its products. Secondly, the firm should examine the rate of repeat purchase amongst its customers. These metrics will aid in determining the level of customer satisfaction. Conversely, the evaluation of the effectiveness of the business processes should consider the following aspects. First, the evaluation of the degree to which the business processes adopted are cost-effective should be examined by assessing whether completion of certain processes such as supply procurement falls within a margin of + or – 5% of the projected completion period. The effectiveness of the e-fashion marketing approach should be examined by evaluating the rate of growth based on the number of customers using the firm’s online marketing platform.
Master budget
Effective budgeting is critical in the process of establishing the new business. During the first two financial years, the firm should consider the following master budget.
Table 1
Table 2
Table 3
Table 4
Tables 5 and 6 below illustrate the projected sales revenue budget. The entrepreneur assumes that the average unit price per item will be set at $100. It is assumed that the price of the fashion apparels will not change significantly.
Table 5
Table 6
Conclusion and Recommendations
Short product life cycles, unpredictable product demands, broad product varieties, and a high degree of volatility characterize the fashion industry. Donna will be required to undertake continuous strategic planning to survive in such an industry. The strategic planning should be based on the findings of a marketing research. The firm should evaluate the changes in the industry structure and make the necessary adjustments to its strategic plan.
References
Cotton, E., & Fawkes, P. (2013). Mobile fashion marketplace connects consumers looking to swap clothes. Web.
Donelly, B. (2015). Damning report on exploitation of the fashion industry in Australia. Web.
Fashion United: Facts and figures about the fashion industry. (2013). Web.
Govindarajan, M. (2007). Marketing management. New York, NY: PHI Learning.
Holmberg, J., & Ohnfeldt, R. (2010). The female fashion consumer behavior: From The perspective of the shop fever in Gothenburg. Web.
Olivera, J., & Silvers, B. (2015). Fashion sector in Australia. Web.
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