GAP Inc Case Study Strategic Management

Strategic management is a dynamic process of aligning strategies, performance and business results; it is all about people, leadership, technology and processes. Effective combination of these elements will help with strategic direction and successful service delivery. It is a continuous activity of setting and maintaining the strategic direction of the organisation and its business, and making decisions on a day-to-day basis to deal with changing circumstances and the challenges of the business environment.

Importance

An organisation has to be able to respond effectively to challenges – both problems and opportunities – as they arise. For example, the citizen has increasing expectations of service standards and availability. In response, organisations are working towards an outward-focused view of the way services should be provided – a fundamental shift from the traditional focus on internal concerns. At the same time, major opportunities for improvement may arise from developments such as new information and communications technologies, and the availability of additional financial resources such as the Invest to Save Budget.

In many cases the response to the problem or opportunity will:

• Require the continuous attention of senior management
• Affect most or all of the organisation
• Have long term implications
• Require substantial resources
• Be interconnected with other issues and developments.
• Factors determining effective strategic management
• A clear business strategy and vision for the future
• A strategic direction endorsed by senior managers, taking account of partners and other stakeholders
• A mechanism for accountability (to the citizen in meeting their expectations, as well as to the centre in meeting policy targets)
• The ability to exploit opportunities and respond to external change (turbulence) by taking ongoing strategic decisions

1. Terms Of Reference

This research report examines GAP Inc, and its strategic decision making into business areas.

2. Business Background

2.1. Founding: Gap Inc. was founded in 1969 by Donald and Doris Fisher in San Francisco, California.

2.2 The Company: Gap Inc. is a leading international apparel retailer offering clothing, accessories and personal care products for men, women, children and babies under the Gap, Banana Republic and Old Navy brand names. Gap brand includes Gap, GapKids, babyGap, GapBody and Gap Outlet.

2.4 Going International: Gap has become one of the world’s most recognized brands, with stores in the U.S., Canada, the United Kingdom, Japan, France and Germany.

Who is involved in strategic management?

Key roles include:

Senior executives and business managers in public sector organisations; they need to seek out opportunities for new ways of working that will help the organisation to realise the agenda for change in the public sector; they also need to be aware of the implications of realignment if the strategic direction is changed

Staff responsible for developing and reviewing the business strategy in their organisations; they need to appreciate the wider business context partners and other stakeholders affected by the strategy.

Principles

The strategic issues facing the organisation and its response to them will call on the organisation’s skills in strategic management – its ability to recognise and deal successfully with strategic issues. In the public sector, these will include:

• addressing the needs of the citizen, not the convenience of the organisation
• greater efficiency and value for money
• improved and innovative service delivery to the public

3. Going International : Before going into a international market a company should consider its internal and external environment. It should also perform SWOT and PEST analysis.

SWOT Analysis of GAP Inc.

A SWOT Analysis is a structured approach to evaluating the strategic position of a business by identifying its strengths, weaknesses, opportunities and threats (Appendix 1). It provides a simple method of synthesizing the results of the marketing audit by summarizing the company’s strengths and weaknesses as they relate to external opportunities and threats. Strengths and weaknesses will derive from the internal marketing audit analysis. Opportunities and threats will derive from the external marketing audit analysis.

(S)trengths

Global Operations: Gap has got operations throughout the world. Thus, it has a well built reputation.

Brand Name: Gap Inc. brands; Gap, Old Navy and Banana Republic, are well established and well known. It has been very successful in establishing its brand image in U.S.A, Canada, United Kingdom, France, Japan and Germany.

Infrastructure: Gap Inc., as being a multinational company, has a very strong infrastructure. They presently have 4261 stores in 7 countries. Having large number of stores in a wide spread area, contributes to their strong image in the apparel industry. Hence, they have the ability of experimenting further international expansion.

Experience: Gap Inc. has a good experience in venturing into the international markets. Its experience could be a support to its establishment in India. Gap Inc. has been doing business since 1969 when its first store was opened in San Francisco. They went international in 1987. Its experience proves itself as to the level it has reached today.

(W)eaknesses

High Price: The prices of Gap products are higher than general prices of similar products in the market. India has a low level of income as compared to other countries where Gap Inc. has successfully ventured. The people might not be able to afford such high prices.

Non diversification: Gap Inc. is concentrated only in the garment industry and all the business comes from garments. This is their weakness, as any problem faced by the garment industry, will automatically affect the company directly.

No Experience in the Asian Market: Gap Inc. has the disadvantage of not having operated in an Asian market before. Therefore, anticipating the future trends in such markets would be difficult for the company.

(O)pportunities

Economies of scale: Due to expansion, the company would be able to gain economies of scale. This would help it gain more profit and keep their prices competitive.

Transportation Cost: As Gap Inc. already does a part of its production in India, selling the product there will save the company in terms of the transportation cost.

Low Labour cost: The cost of the skilled labour in India, being low, would enable Gap Inc. to save costs.

Better Profits: As the cost will reduce due to the previous advantages, there will be higher scope to increase the profits.

India being a developing country: India as a developing country, offers a better opportunity to do business there. As the country is developing so is the market.

Legal Differences: As the country is developing, there will be less legal obligations. This could be very advantageous for the companies from the developed countries. The health and safety regulation is also very liberal and also be a benefit for them.

(T)hreats

Government Regulations: Government regulations can be an opportunity and also a threat at the same time. Sometimes the government regulations and procedures are unpredictable and time consuming; this could be a threat for the company.

Competitive market: India is a very large exporter of garments and also possesses a large garment industry, which occupies a considerable portion of the national income.

Economic Condition: Due to the recession in the Indian economy, the garment industry has been negatively affected.

Taste and Preferences: The taste and preferences of the Indian population is very different from what Gap Inc. offers. Gap Inc. has a product range that mainly consists of plain and sober clothes, whereas the local market has a trend of wearing colourful clothing.

Pest Analysis of India – GAP Inc

(P)olitical

Country’s Political Instability: The country has a political instability due to the communal riots and disputes with the neighbouring countries. This can cause a problem in the sense that the company might be faced with short supply anytime, if such situation repeats.

International Law: In 1991 the government of India announced the globalisation of the Indian economy. Since then, many multinational companies have entered Indian market to exploit the cheap skilled labour and explore the highly potential Indian market to sell their products and services. Gap Inc., does have a good opportunity to mark its space in the developing Indian market.

(E)conomic

Currency: Indian currency, Rupee, is very unstable and its exchange rate is very weak in comparison to US Dollar and Great Britain Pound.

Per Capita Income: Indian population is very large but its per capita income is very low in comparison with other developed countries. This could be a negative factor for the company as most of the population might not be able to afford its highly price products.

Infrastructure: The infrastructure of the country, like transportation and communication is not as good as in developed country, but still it should not hamper the functioning of Gap Inc. in the country.

Terms of payment: The terms of payment in India for their customers and suppliers may differ with the term of payment of USA or UK.

(S)ocial

Culture: The taste and preferences of the population is driven from culture. But the influence of modernisation and western culture has altered the preferences of the population. Thus, it makes it advantageous for Gap Inc. as their products are of the same kind.

Education: The education system in the country has developed since independence. Presently, India has a large number educated and skilled labour who can serve at a cheaper price.

Brand Awareness: Due to improvement in technology, in communication and media, people have become more aware of brands. Hence, the importance of using branded products has increased considerably. As Gap Inc. already has a renowned brand name, it will be easier for them to establish themselves in the minds of the changing population.

Religion: India has a large number of diversified religions. This might be a problem for Gap Inc., as different religion might have different preferences in the clothing style. For example some religions in India do not prefer women to wear the kind of clothes that Gap Inc makes, like deep-neck blouses and short skirts.

Work and Leisure: The trend of clothes worn in India for both work and leisure is quite similar. People wear semi-formals or semi-casuals. Gap Inc. has a positive advantage in this case, as they have mastery in this kind of clothing.

(T)echnological

Travel and Distribution Infrastructure: The travel and distribution infrastructure in the country is only up to international standards in metropolitan cities and economically developed areas; but is not good enough in most parts of the country. Gap Inc. won’t be much affected by this disadvantage as its major target customers lies in the metropolitans.

Communications Infrastructure: India has got an advanced communication systems. India has become one of the major Information Technology giants. Ironically people are still not used to e-commerce features like online shopping. This has not been a success as people fear of being cheated. Gap Inc. won’t really have a good business in online shopping as they have in developed countries

Manufacturing Base and Capability: India has got a good base for manufacturing garments of good quality standards. It has got the capability of matching Gap Inc. requirements. This is evident as Gap Inc. products are already being manufactured in India. Most of the Gap Inc.’s linen based products are being sourced from India.

Strategic Objectives

As a result of the marketing audit and SWOT analysis, relevant objectives will be set. Two types of objectives need to be considered: strategic thrust and strategic objectives.

Key factors for strategy development

Strategic Thrust

Strategic thrust defines which products to sell in which markets. There could be four options as follows

Market penetration or expansion (existing products in existing markets): This strategy aims at penetrating deeper into the market. It tries to make the existing customer brand loyal and also attract new customer to buy their brand. The tactics used in this is to make the customer use the brand more often and in greater quantities.

Product development (new/related products for existing markets): This strategy involves increasing sales by improving present products and innovating new products for the current market. This can be achieved by improving style, performance and comfort of the product. Gap Inc. would have to design new products suitable for prospective customer.

Market development (existing products in new/related markets): This strategy is used to sell the current products in new markets. This may involve moving into new geographical areas or new market segments. To get into the Indian market Gap Inc. won’t have to develop the whole product line, but, instead can bring in the already existing successful products to the market.

Entry into new markets (new/related products for new/related markets): This is the most risk bearing strategy as both, the product and the market is new to the companies and the customer. But this strategy is necessary if the company is showing discouraging signs of future growth or if the company is looking for expansion considering the introduction of new products related to the new market. Gap Inc. can use their innovative experience for developing new set of products keeping in mind the Indian market segments.

Strategic Objectives

Strategic objectives for products need to be set. The objectives are to build sales and market share, hold, harvest (improve profit margins) and divest (drop or sell product). The strategic objective is to decide according to the company’s situation which is determined by SWOT analysis, mark and audit the evaluation of strategic options. In the case Gap Inc., they are planning to enter into the Indian market. Their strategic objective therefore, would be to builtd sales.

• Core Strategy

Core marketing strategy involves the achievement of marketing objectives through the determination of target markets, the setting of competitor targets and the creation of a competitive advantage.

• Target Markets

The target market is the place where the company is planning to sell its products. In this particular case the target market for Gap Inc. is India. Considering market segmentation it would further be segmented by age and gender.

• Competitor Targets

Besides targeting consumers/organizations, the company will choose competitor targets. Weak competitors may be viewed as easy prey and resources channelled to attack them. The choice of target market may define competitor targets and be influenced by them: market segments with weak competitors may be attractive targets.

• Competitor Advantage

A competitive advantage is a clear performance differential over competitors on factors that are important to target consumers/organizations. This provides the basis of how Gap Inc. competes. Major success experienced by Gap in other overseas markets, has contributed to create a competitive advantage by being more efficient at anticipating or responding to customer needs than competitors, or being closer by establishing close long-term relationships with customers.

• Implementation and control

Implementation and control of the strategic plans the company has made is made by a set of decision making these are known as

Marketing Mix Decisions

By defining a target market and understanding the needs of their consumers/organizations, a marketing mix can be created to meet those needs better than the competition. The four key decisions areas to be considered while making a marketing mix decision are product, promotion, price and place.

Product: Product decision involves finding the requirement of the target customer segment. The chance of the product failing after having carried out a market research is minimized. Brand decisions like brand name, packaging, guarantees and services for the product line, should be based on the targeted customer segment. Due to everyday changes in technology and taste of the customer, the brand should be innovative and creative to maintain its customer’s brand loyalty.

Firstly, Gap Inc. should carry out a market research to find out base for the target customer segment for each of its brand in the Indian market. This would help Gap Inc. understand its customer base better and reduce their chances of failure. The company products should be innovative to meet the dynamic requirement of their related customer base. This would provide them with regular and repeated customers and would attract new customers.

Promotion

Promotional mix combines advertising, public relation, sales promotion personal selling, direct marketing, internet and online promotion. This makes the target audience aware about the existence of a product or services and the benefits involved with it. Promotion focuses on the distinctive features of a product. Thus, the basic aim of the promotion is to communicate information to targeted customers and potential users about the products and persuade them to buy.

Promotion bridges the informational gap between the brand and its targeted customers. Gap Inc. should use promotional techniques which would reach directly to its target audience. Gap Inc. being a garment related company should use a promotional measure like sales promotion, T.V., newspaper, journal advertising and stage and fashion shows to reach their diversified customer range and make their presence felt in the Indian market.

Price

Price is a key element of marketing mix, as it is the only element that represents the monetary inflow for the product and services being marketed. The Ps in the marketing mix represent monetary outflow for example, expenditure on product design (product), advertising (promotion), transportation (place). The company should be very careful and considerate while pricing their products, as they should consider all the factors that influence their price setting. They should keep some margin for the future discounts and allowances that they might have to provide to the customers in case of the increase in the competition in the market.

There are a number of pricing policies which Gap Inc. may adopt to achieve its pricing objectives. These include: skim, penetration, mixed, differential. Gap can use a penetration pricing to increase the market share.

Place

Place element of the marketing mix concentrates mainly on the distribution channels to be used and their management, the location of outlets, methods of transportation and inventory levels to be held. Its purpose is to ensure the availability of the required products at the required time and place. Place in which the company should market their products should be chosen very carefully , to make sure that it is readily in contact with its target customer base to help increase the sales and thus the profit involved.

Gap Inc. should supply and market their products, where they have the required demand for them. They should set up their base in the markets where there is a demand for the high quality goods, and should also keep in consideration the fact that these markets should be where the supply of raw materials for their product is easier. Thus, Gap Inc. can setup their product range in big cities in India with good distribution systems. Easy and quick access to the market would also help in cost-cuttings.

Recommendations

Market Segmentation

Market segmentation identifies the organisations or individuals having similar characteristics that have significant implications for the determination of marketing strategy. Market segmentation forms the basis for the identification of the target market. A segment that the company decides to get involved in is its target market. Due to the similarities in the characteristics of the customers, only one marketing strategy is required. If the segmentation is done in a creative manner, then this could help the companies to identify new segments that have not yet been served by any other companies.

10. Conclusion:

We as the Marketing managers, do not recommend Gap Inc. to expand their business in the Indian market. This is evident after having evaluated the negative factors that can affect Gap Inc. in expanding in India and those factors that can be advantageous if Gap Inc. carries out the expansion.

• High competition
• Cultural differences
• Lack of experience in Asian markets
• High priced product range
• Difference in taste of clothing