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The GAP: PESTEL, SWOT and Porter’s Five Analysis

1685 words (7 pages) Essay in Business Strategy

15/06/18 Business Strategy Reference this

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Elements of Analysis: The GAP Case

PESTEL Analysis

Utilizing the PESTEL (Political, Economic, Social, Technological, Environmental & Legal factors) model, the key drivers and areas of significant impact for the competitive advantage in the GAP case are (Johnson, Scholes & Whittington 2005, pp. 65, 68):

  1. Political – This seems only to be a factor with regards to operational differences between geographic/geopolitical regions, i.e., the US vs. the UK, and social welfare policies that affect actual garment construction.
  2. Social – This is a major driver of success as “fashion” and “style” would likely fall under this auspice. Specifically, the ability of the firm to generate the perception that its products reflect the fleeting sense of a trend is central to being a leader in retail fashion.
  3. Technological – This is a significant factor as the lack of a fully function European e-commerce platform was an opportunity cost that can be measured in lost market share valued in the multi-million pound range.

SWOT Analysis

  1. Strengths – The Gap has existed marketing power and presence and has prime, established retail locations throughout the US and UK.
  2. Weaknesses – The inability to establish e-commerce on the UK side has lost not only sales opportunities but likely tarnished the image of a company that wants to be seen a ‘hip and trendy’ in a digital age in which competitive parity is ‘bricks and clicks’.
  3. Opportunities – Through existing resources and brand equity, the Gap has the opportunity to regain one of the top spots in the mind of the consumer for fashionable clothing. One of the chief means of doing so is to quickly replicate the success of the online presence of the US business in the UK.
  4. Threats – Perhaps the biggest threat is that one of the smaller boutique venues will achieve sufficient success to legitimately chip away at the mindshare of the consumer that Gap currently has on a scale that will be very difficult to reclaim.

Porter’s 5 Forces

As with the PESTEL framework above, only the most salient factors are indicated (Porter 1980, p. 4):

  1. Potential Entrants –The rise of small-scale boutique firms allow profit-taking from firms that do not have the ‘overhead’ of a corporation such as The Gap. This allows for greater flexibility and speed in the delivery of fashion to market.
  2. The Threat of Substitute Goods – Similar to “potential entrants”, there are not only other products that perform the same function but, in times in which economics dictate allocation of scarce consumer resources amongst items that, to some extent, fall under the category of highly discretionary spending. Contrary to this, one might argue that ‘fashion will always be in style’ and thus in-demand, the attractiveness of the industry will attract more entrants. Eventually, a form of homeostasis will be achieved but only at the expense of the exit of some less profitable firms.
  3. Industry Rivalry – The combination of the above two factors creates what is arguably a hypercompetitive environment characterized by larger firms seeking to sustain competitive advantage through enduring presence while small, flexible and fast firms seek to take perhaps a temporal portion by capitalizing on that which is most trendy.

The Four P’s (Price, Promotion, Place & Product)

The concept of the marketing mix or “the 4 P’s” gives tremendous strategic insight into how the firm goes to market with its portfolio of goods and services.

  1. Price – Pricey but not so much that they cannot be seen as “luxurious necessities” for those for whom being ‘cool’ or ‘sexy’ is a real or aspirant lifestyle.
  2. Promotion – Consistent with other aspects of the marketing mix, television advertisements feature hip and trendy music, often done by somewhat older (yet still cool) musicians with engaging music. These featuring dancing or at least, rhythmic maneuvers, in which one must assume the clothes worn are as much a part of the causative agent for such behavior as the apparent youthful attraction and attitude of the performance crew.
  3. Place – Sold only through Gap stores in mainstream retail locations such as shopping malls and through, at least in the US, Gap-branded online channels.
  4. Product – Positioned as perhaps something that could be labeled as [young] ‘sexy casual’, such an offering virtually defines its market as those who are young and view (or want to view) themselves as fashionable and trendy. Products include shirts, jeans, sweaters, accessories and more and all geared at generating such a “feel” or experience for the wearer.

Overall Business Strategy

In general, a firm can have one of two broad strategies: cost-leadership or differentiation. With regards to differentiation, a firm may choose to segment based upon the customer by focusing on a niche or specialty market or they may choose product differentiation as by innovation or similar pursuit (Porter 1980, p. 35). Using this general approach, the Gap clearly pursues a strategy of seeking competitive advantage by differentiating product offerings (what it does) to those for whom a sense of ‘urban/sub-urban-esque’ fashionable “personal style” is very relevant to their lifestyle (the target market) through a combination of exclusive retail locations and a corollary online venue (the where of it’s strategy).

Corporate Social Responsibility

The idea of corporate social responsibility is best expressed by the notion of, “… the extent to which an organization exceeds the minimum obligations to stakeholders as specified through regulation and corporate governance” (Johnson, Scholes & Whittington 2005, p. 191). With regards to the GAP case, such a perspective is evident when they actively seek to position themselves not simply as seeking to establish sustained competitive advantage but the advantages conferred to everyone through sustainable business. Specifically, through their alliance to support AIDS awareness and suffering, they achieve profits and good works. Antithetically, one critique would likely be to question not the outcome but the motive for doing so.

The Resource-Based View

The essence of the resource-based view of the view establishes the lens of the “VRIO framework”. That is, for a firm to achieve sustained competitive advantage, its resources must be valuable, rare, inimitable and organizational in nature (Barney 2007, p. 138). With this in mind, it seems to follow that the best sources of such are resources which are intangible rather than tangible. From this perspective, the ability of GAP to attract and retain designers who can consistently replicate and market what is or is about to become “fashionable” at competitive costs would meet such criteria.

Strategic Recommendations

The essence of the Gap to maintain/re-establish sustainable competitive advantage is to be able to be both “big” and “small” simultaneously. The competition seemingly enjoys the element of first-mover advantage with regards to their ability to operate under the radar only to appear with trendy products in the market that less insightful firms can then attempt to copy. Correspondingly, the ability of the boutique firm to mass-produce and distribute a successful product is far less than that of the Gap with it established manufacturers and well-oiled distribution channels. Thus, the Gap needs to adopt fast, flexible methods of getting fresh and accurate insights into production and into stores. In the classic business decision, the Gap has but two options: make or buy. That is, they can either allocate resources in the form of time, talent or treasure (aka, money) to acquire these abilities or they may choose to outsource these functions to other firms. Perhaps a hybridized solution is to form strategic alliances with such smaller firms that have these resources in abundance but lack the marketing and manufacturing power of the Gap. Such a solution would achieve the goal of the acquisition, even if temporary, that the Gap seems to lack as it seeks to create lasting sources of competitive advantage in the face of the hyper-competitive, mature yet dynamically fickle industry of upscale casual fashion apparel.

Mature vs. Dynamic Firm

The Gap competes in a arguably mature but changing and constanting renewing industry. A “mature” industry can be characterized by the following (Barney 2007, p. 94):

  1. Slowing growth in total industry demand.
  2. The development of experienced repeat customers.
  3. A slowdown in the increases in production capacity.
  4. A decrease in new product introductions.
  5. An increase in the level of international competition.
  6. An overall reduction in industry profitability.

With these criteria, the retail fashion clothing industry is perhaps somewhat unique in that each year brings something of a second-chance to capture the market. Though the degree of competitiveness and production capacity indicate a mature industry, the new arrivals to the target customer segment in regards to age, affluence and attitudes provide a potentially rich new customer base.

These factors lead to the classification of the industry as being “mature” but yet quite “dynamic” in the sense that technology and the preferred tastes of an ever-changing consumer segment create a need for the Gap to acquire marketing insights and speed and flexibility in production to bring such high-margin, high-risk products as fashion clothing to market.

Key References

Barney, J. (2007). Creating and Sustaining Competitive Advantage, 3rd edition. Upper Saddle River, New Jersey: Pearson Prentice-Hall.

Johnson, G., K. Scholes, and R. Whittington. (2005). Exploring Corporate Strategy, 7th edition. Harlow, England: Prentice-Hall.

Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries & Competitors. Boston, Massachusetts: The Free Press.

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