The purpose of the report is to establish three strategies which will address issues within Cotton-On Ltd causing their current financial troubles. The three chosen strategies are: research consumer buying habits, introduce online sales and expand sales into the European Union countries. These strategies will be explored and discussed to explain how they help improve the situation at Cotton-On Ltd.
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The first strategy “research consumer buying habits” shows how we look through the range of methods used for researching consumer buying habits in order to make a recommendation which is most suitable related to Cotton-On Ltd. Gathered data can be used to make decisions regarding various concerns with Cotton-On Ltd, such as product range, pricing or available sales channels. The methods used for researching consumer buying habits helps support other strategies because it allows Cotton-On Ltd to understand potential customers in new market settings.
The second strategy “introduce online sales” refers to Cotton-On Ltd using the internet as a tool to strengthen the company because it is increasingly beneficial for them. Through extensive research Cotton-On Ltd should introduce online sales because of their position within the market otherwise they will be disadvantaged compared to competitors. Also the potential of the online sales channel is an opportunity for them to expand online and take advantage of the internet as a marketing tool. However there is a range of different ways Cotton-On Ltd can choose to approach selling their products online and this will be further discussed within the report.
The third strategy “expand sales into European Union countries” explores this topic in context of online sales. The UK is a leading European country in relation to online sales however there are bigger markets to be explored, since some of these markets are expected to grow in the next few years. The topics which will be discussed is the European market related to Cotton-On Ltd, the aspect of the language barrier, the pricing / currency and any other points will be taken into consideration.
All three strategies are explained to show the advantages for Cotton-On Ltd and highlight the main issues. We show how the strategies are linked together and where possible, suggest methods for implementation and overcoming issues. Those strategies are a starting point for the company to overcome their problems.
Research Consumer Buying Habits
Consumer buying habit is a complex matter and there are many factors that influence buying decision of the customer. When it comes to researching consumer behaviour for a business it is the greatest mystery of any business to solve (Matt Alderton, no date).
There are many ways we could find out about consumer buying habits, but before doing anything else we need to investigate Cotton-On Ltd, its System or any previous study on the matter. One of the following techniques would be chosen to suit Cotton-On Ltd namely, interview, questionnaire, survey and consumer panel, but the best would be to organize customer focus group to help Cotton-On Ltd identify and find consumer specific needs. Customer focus group will produce good customer data in their own words, which would help create more effective marketing campaign and will expose problems within Cotton-On Ltd (Matt Alderton, no date). To get the best out of customer focus group it is important to stay focused on Cotton-On Ltd objectives that would have to be why the business is losing sale and how to save money?
Predetermined questions and Moderator who be able to speak comfortably, easy to approach.
Recruit up to twelve participants; the selection will be according to our question and will avoid random customer.
Record the focus group either with a tape recorder or a video camera, but will have to ask participants permission.
Evaluate feedback by reviewing the session to improve the quality (Matt Alderton, no date).
As well as organising focus group Cotton-On Ltd should have a Consumer Panel to test our product as Consumer Panels are useful for fast short survey (DJS Research Ltd, no date).
There are a few problems with Cotton-On Ltd system needs updating, improving and even would be scrapped once the new recommendation and system is implemented, but global issues have to be taken into account too, due to economic climate of UK, which is either flat or negative growth for the last six months family budgets are tight only spending where it matters most.
The first issue has been noticed in Cotton-On Ltd case is that until last year it represented 20 per cent of UK customers, which is equivalent of 30 per cent of the UK sales revenue. That means Cotton-On Ltd prices are higher and something needs to be done in order to increment the sales revenue, whilst retaining the same sales revenue at least for now. In the light of the focus group Cotton-On Ltd will have to move accordingly whether to keep the same price for the moment, but offering something in addition to what customer buys or anything, otherwise desired.
As Cotton-On Ltd have 20 stores across the UK and the only other mean of sale we have is through mail order, the Office for National Statistics retail sales figure for January 2012 out today 17-February 2012, non-store retailing which is mainly internet sales, grew by 13.3% in January (Chloe Rigby, 2012). So the shift continues from high street sales to online and mail order Cotton-On Ltd needs to recognize this and move accordingly. As a retailer the key for Cotton-On Ltd is to combine the flexibility that online and mail order delivers, with the customer service of the physical shopping. By bringing those together Cotton-On Ltd services and offers become more compelling to it is customers and this will lead to increased revenue, and will improve Cotton-On Ltd brand value (Chloe Rigby, 2012).
As it shows in meeting of Cotton-On Ltd directors that the business does not know sales of their products by colour, size and Cotton-On Ltd should know which product is selling well and which one is not. So once we produce the final report on consumer buying habit we would be able to know these answers to some extent. Cotton-On Ltd would be able to decide accordingly to whether it is best to have online system that can filter separately each online sold product to our database then it will be easier for Cotton-On Ltd to see the products selling more, less, or none. In this way, we would be able to collate the data easily without losing them and produce in our factories according to these good and rich customers data.
For finding out more about customer buying habits Cotton-On Ltd should have a good information system that allows collating data from online sales and also customers should be able to track their order. In this way we can expose our customers buying habits that how often they buy, their desired colour, for example it is very likely giving the system we have in Cotton-On Ltd that there are lots of certain products colour and sizes that never or very little been sold, so we need to cut producing those product in order to reduce waste and will result saving money.
Introduce Online Sales
Cotton-On Ltd provides their customers with a few traditional ways of buying their products, they also have presence on the Internet via their website and advertising but they do not use it as distribution channel. Research shows that in the current market, where many traditional retailers have already introduced Internet sales, this step becomes a strategic necessity (Bernstein et al., 2008). Therefore Cotton-On Ltd is currently left in a disadvantaged position.
In addition, even in this time of economic difficulties, when the traditional retail sector is shrinking, the number of online buyers and online sales are increasing (Datamonitor, 2011a). According to Datamonitor (2011a) in 2010 the online retail sector in the United Kingdom reached revenue of over £24.1 billion ($38 billion) and sales in apparel (including accessories and footwear) reached £3.5 billion ($5.5 billion). The entire market is expected to grow to over £41.9 billion ($66 billion) by the end of 2015, 11.6% growth. This shows the potential of the online sales channel.
It is relatively easy to enter into Internet retail, especially for an established company with set up distance sales, as the costs are low and there are little additional regulations (Datamonitor, 2011a; Great Britain. Office of Fair Trading, 2006).
Implementation and Issues
Cotton-On Ltd may not have staff with sufficient skills to build and maintain an online store integrated with their website; however this is not the only way of implementing this strategy. Using an existing online service, which allows retailers to sell through their website, may prove more feasible as the first step in providing online sales. Even though this is not an ideal solution (Bernstein et al., 2008) it also addresses other issuers mentioned later in this section. The current website can be updated to direct interested customers to the service where they can make a purchase, while the staff will only be faced with learning whatever interface the service is providing.
There are a few other concerns related to online sales and gaining new customers through this channel. Research suggests that the reason for the strong standing of the online market is the convenience of lower prices and price comparison tools (Datamonitor, 2011a; Bernstein et al., 2008). Therefore price competition may be stronger than in the traditional market. At the same time, use of online sales helps to reduce transaction costs and some of those savings can be passed to customers (Bernstein et al., 2008) at least partially addressing the pricing issues. It is likely that this strategy will reduce sales through other channels, but this redirection is desirable due to the aforementioned reduced costs (Bernstein et al., 2008). The effects should be monitored and further decisions should be made accordingly. For example, telephone sales may no longer require as many staff members, but they may be trained for support in online sales and customer service via email.
Trust is the main issue when attracting new buyers in the online setting. Customers are concerned about the security of online transactions, which means they are more likely to select known and trusted retailers (Datamonitor, 2011a; Premazzi et al., 2010). A study conducted by Premazzi, Castaldo, Grosso and Hofacker (2010) find that customers are more willing to provide their information only for certain compensation (prizes, vouchers etc.). And therefore, if this method is used, the type of compensation should suit the targeted audiences. It also concludes that well designed, user friendly and error free websites may increase customer trust.
Another way of targeting new customers may be by using an already known and trusted service, for example Amazon. They are one of the biggest online retailers (Datamonitor, 2011a) and they offer ways for retailers to sell products on their website with relatively low cost (Amazon, no date). Products made available through Amazon website will be exposed to millions of shoppers that use their services, and Cotton-On Ltd could use Amazon’s position in the market as a declaration of the safety of the transaction to the customers (Amazon, no date). Additionally, successful transactions will increase Cotton-On Ltd brand’s exposure and increase trust for it.
Selling over the Internet is considered the same as selling over the phone in light of distance selling regulations (Great Britain. Office of Fair Trading, 2006). Therefore we can expect that Cotton-On Ltd is already adhering to those regulations. However the Electronic Commerce (EC Directive) Regulations 2002 introduces additional rules regarding advertising and sales using electronic channels. Because Cotton-On Ltd is already advertising on the Internet, hopefully with respect to those regulations, only extensions to sales specific regulations are required. Those rules affect:
Information provided on the website used for sales.
Technical means provided to customers (for example for identifying and correcting errors).
Method of acknowledging orders (i.e. receipt supplied by electronic means).
(Great Britain. Department for Business, Enterprise and Regulatory Reform, 2002).
Introducing an online distribution channel should not cause high additional costs related to legal matters.
Besides reduced costs and the chance of attracting new customers, use of the electronic sales channel also automates data collection and saves time required for order processing. If the changes are monitored and correct decisions are made to maximise benefits, Cotton-On Ltd will not only attract additional revenue but also lower its operation costs.
Expand Sales to European Union
We propose the expansion of sales to other European Union countries only applies to the sales over the Internet. Costs of online expansion are relatively low, compared to a more physical solution (Premazzi, 2010) and high cost projects will probably not be possible due to the current situation at Cotton-On Ltd.
The United Kingdom represents 23.5% of the European online retail sector (Datamonitor, 2011a). The other big markets are France, Germany, Italy and Spain – with respectively 21.5%, 14.9%, 7.2% and 5.5% share of the market (Datamonitor, 2011a). It is also worth noting that both France and Germany have larger predicted growth over the next few years than the United Kingdom market. The French market is expected to exceed £57.8 billion ($90.8 billion) – 21% growth, and the German market is expected to exceed £27.8 ($24.2 billion) – 12.5% growth. Apparel (including footwear and accessories) accounts for 14.1% in both the German and French markets (Datamonitor, 2011b; c). This means that there is a large potential market outside of the United Kingdom.
Implementation and Issues
The technical and trust issues were already covered in the section on introduction of online sales, and the information provided also applies to this strategy. Pricing issues will be revisited in the context of foreign markets, due to issues arising from currency differences.
The Single Market
The European Union market is easy to access. European Union member states standardise their law to operate in a single market programme. The aim of this programme is to make doing business with other European Union counties as similar as possible to doing business in the company’s country of origin.
Measures, that European Union countries have introduced to achieve this, include:
Reduction of paperwork – accounting for the purposes of VAT is the same as for sales/purchases in the United Kingdom.
Unified standards – complying with United Kingdom technical and safety standards ensures meeting standards in other European Union countries.
Free movement of people – it is easy to employ European Union citizens in United Kingdom companies.
Free movement of goods – goods produced in the European Union or imported into a member state with duty paid, are considered to be in free circulation, further customs duty is not payable.
Common currency – 17 out of 27 member states have introduced the Euro as their currency, which reduces currency considerations for businesses.
(Business Link, no date c; d; f)
Even though English is the language used internationally in business, it is still beneficial to have knowledge of country’s language and culture while doing business there (Business Link, no date a). A Eurobarometer pool found that almost half of the European Union citizens only speak one language (European Commission, 2012). Cotton-On Ltd needs to translate their website and products’ descriptions to the languages of targeted countries to not miss out on potential customers from those markets. They should also consider providing customer service in selected languages; it is possible they already have staff with language skills and if not, the free movement of people within the EEA makes it easier for businesses to find employees with the right skills (Business Link, no date b; d).
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Customers in other countries expect prices in their local currency. Therefore a company entering a foreign market should consider pricing and issues related to currency exchange (Business Link, no date h). Additional research into the market is required to make decisions on pricing; prices appropriate in the United Kingdom may not be appropriate in the new market (Business Link, no date e).
Cotton-On Ltd should also research competition in the new markets; consider marketing, delivery methods, payment methods and related costs (Business Link, no date e).
The solution proposed for introducing online sales, where Cotton-On Ltd would use a known online retailer is also applicable here. If they choose an online retailer that already operates in their target markets, like Amazon (Amazon, no date), it may reduce some costs and solve some technical issues.
Because each country’s market and culture is different, and some European countries still operate with their own currency, it is probably not feasible to expand to the entire European Union at once. Cotton-On Ltd should perform more detailed research into potential target markets and decide which to enter.
In our report, we established the three strategies: Research consumer buying habits, introduction of online sales and expansion of sales to European Union, which we think will address some of the problems arising at Cotton-On Limited. The main problem of the company is its financial situation and we are finding ways on how the three strategies and the process that can help to cope with this problem. We also talk about the possibilities on how the company can increase their sales through the strategies. In our research we also found out that the Cotton-On Ltd cannot only increase sales, but can also gain new prospected customers if Cotton-On Ltd follows the right procedure in implementing the strategies.
In the Consumer Buying Habits, we were able to explain the methods that can be used to help the company with the targeting of their consumers. With the production of their products, the company will be able to target consumers who will be interested in the products. Interviews, questionnaire, survey and consumer panel are the method that can be used to get the target market for Cotton-On Limited.
The Introduction of Online Sales is about using the Internet as a tool in selling their products. This strategy can also strengthen Cotton-On Limited, because it shows in the research that the number of online sales in the UK is increasing and will continue in same scale. We raised the implementation and the legal issues that the Cotton-On Ltd should take into consideration. We find out benefits as well that the company can get like reducing of cost however; they can still increase their profits. They can also attract new customers and gather customer information. There is a major issue in gaining customer trust. Most customers do not trust online sales so we recommend Cotton-On Limited to use known online retailers such as Amazon to target new customers and increase trust for the brand.
In the Expansion of Sales to European Union, it is more likely the introduction of online sales because the company need to use the Internet for this strategy. Cotton-On Limited can use their internet setting so they can easily expand their business to the European Union countries. There are issues in this strategy such as the currency because most European Union countries use different currency so customers expect the prices to be in their local currency. With this issue, Cotton-On Limited should consider the pricing and issues related to the country’s currency exchange. We also talked about the language issue because different country speaks different language. It is discussed that it will really not be a big problem as English is the language used internationally in business however; customers expect their native language to be used so in selling the products, Cotton-On Limited needs to use the native language of the country where they are running their business. The company should also consider that they will enter a new market so they will also have new competitors in the business.
The goal of these three strategies is to increase the revenue of Cotton-On Limited. The three strategies mentioned can help in increasing the funds of the company. If the company will be able to increase their funding because of the three strategies, they will have more budgets to make further improvements to increase the money coming in to the company.
The company can also do stock control. This is a very useful improvement to increase their revenue. Stock control is very important because if they cannot do it effectively, it can lead to loss of sales or it can damage the reputation of the business. They have to make sure that they have enough stock all the time at the right time. They have to make sure that they have products to offer to their customers to gain business reputation so that they can have loyal customers and gain new ones. The company should make sure that they make careful planning with their stock control because having effective stock control can lead to making the business larger.
The company will also need more tailored information system across their departments so they can get support on gathering data that can make the operation smooth and can reduce related costs.
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