The State Of The Primark Company Marketing Essay

Introduction

Primark is a part of Associated British Foods (ABF). It is a major retail group having over 31,500

employees. It has now 204 stores across the UK, Ireland, Spain, Netherlands, Portugal, Belgium and

Germany (www.abf.co.uk). Targeted at the fashion-conscious under 35s, it offers its customers a

Good quality merchandise at a nominal price. Womenswear, lingerie, menswear, childrenswear,

footwear, accessories and homewear are Primark’s range of departments.

1. Current strategic position of Primark:

An organization operates within certain bounds. These bounds are normally created by its

competitors and the macro environment of the organization. The knowledge of the organization’s

current positioning probably defines an organization’s strategic orientation. To estimate the current

positioning of Primark, there is some elements need to be analysed separately and carefully. They

are the external environment and internal environment analysis of primark. By analysing these

environments give an idea of an organization’s current situation in the current market.

1.1 External analysis:

An organization operates within the external environment that shapes opportunities and poses

threats to the organization. This external environment is a set of complex, rapidly changing and

significant forces. These forces are not controlled by an organization, but they may be influenced or

affected that organization that provides a list of influences on the possible success or failure of the

strategies.

The first model which is used to assess the Primark’s external environment is a PEST analysis. A

detailed of Primark’s PEST is provided in Appendics1 and the key influences are as follows:

1.1.1 Political factors:

Because of the high VAT in the business, it is more difficult for Primark to keep their low price for the

consumers. Primark is known as one of the cheapest retailer in the UK. Although the risen VAT

also affect its competitors, but primark still need to worry about it. Because primark doesn’t want

to be cheaper than anybody else, they want to be the cheapest in the market.

This VAT may explain why primark chain of stores already experienced a marked reduction in

demand because of the VAT rise. Associated British Food’s Financial Director, John Bason said that

UK consumers are feeling a squeeze because of the VAT rise, and they have less to

Spend (jobvacancies.org).

1.1.2 Economic factors:

In a recession consumers have less money to spend on shopping-necessities such as cloths and

moved to the down-market. Being the cut-price clothing chain, primark gets those buyers who

moved to the down-market from the up-market.

May be because of that they have a 10% increase in profits. George Weston the chief executive of

parent company Associated British Foods said, primark has done well in good times and it is doing

well in bad times (guardian, 2009).

1.1.3 Social factors:

The recent recession has played a major part in the social mobility within the UK. Because of the

recession the unemployment levels has gone up higher and this can affect social mobility.

This may limit the growth opportunities.

People now live longer, which are an indication of increasing customers, means people spend more

money during their lifetimes. Although Primark’s main customer base is under 35s, but it has a large

proportion of people over 55. This presents a good business opportunity for primark.

1.1.4 Technological factors:

The use of social networking sites now present the company to a massive number of people. Primark

has reportedly used face book in order to create a fanbase to keep customers up to date on the

promotions. It has about 152984 fans on the Facebook site (facebook.com).

This may create a great opportunity for the company. it allows the company to reach to millions of

people who promote the company’s product by word of mouth. It also allow primark to get millions

of customers data which allow the company to further promotion to the customers and get more

customers leading the company to find out more opportunities. This also may allow them to save

their advertising costs which allow them to provide cheaper products.

1.2 Porters 5 forces:

The fast-fashion retailer Primark has made an outstanding performance for the last year with

operating profits up 35% and the profits hit £341m as to September, 2010(guardian.co.uk, 2010).

Through the examining of porters 5 forces may identify the key reasons for this fantastic success. A

detailed list is provided in appendices 2 for more understanding:

1.2.1 The threat of new entry:

New entrants to an industry bring new capacity; they also desire to gain market share and often the

sustainable resources (Smit, 2000). So the existing companies are quite reluctant to welcome any

new entrant in the industry. The greater the threat of entry, the worse it is for the existing

competitors in an industry (Johnson et al, 2011). Because of primark Economies of scale it will be

very expensive and hard for any other new entrants who wish to enter in the clothing industry.

The economies of scale enable primark to offers cheaper products than anyone in the market. But

still some other companies are entering the market such as Tesco, Sainsbury’s or Asda who wants to

join the price wars with Primark. It probably creates a new threat for Primark.

1.2.2 The power of buyers:

Buyers are those for an organization’s who are immediate customers not necessarily the ultimate

consumers. If buyers are powerful then they can demand cheap prices or service improvement.

Although there is no switching cost in clothing industry but still prices make up the customers mind.

As primark is one of the cheapest clothing retailers in UK and may be no other company can be

cheaper like them, so the customers are happy to go there. It s not the buyers it’s the primark

powerful in this case.

1.2.3 The power of suppliers:

Johnson (2011, pp 58) said that, “suppliers are those who supply the organization with what it needs

to produce the product or service”. As the primark suppliers’ names are not mentioned but it is seen

that the cut price fashion chain primark has suppliers in Bangladesh, India, Vietnam and some other

countries. This means Primark is not as dependent as other stores. They are not reliant on one

supplier, suppliers can be made to compete against each other for business and primark can easily

switch to another supplier if costs rise. This allows them to control the costs and further improve its

margins.

1.2.4 The threat of substitute:

Smit(2000) said that, “by placing a ceiling on prices it can charge, substitute products or services

limit the potential of an industry, unless it can upgrade the quality of the product or differentiate it

somehow (as via marketing), the industry will suffer in earnings and possibly in growth”. Due to the

number of competitors in the market the threat of substitutes is high. Customers are more likely to

seek cheaper alternatives even in superstore. Although primark is still cheaper than any other

company so it still keeping its position but it has to keep observing its competitors who might come

up with some substitutes.

1.2.5 Competitive rivalry:

The intellectual property lawyer Nicola Solomon said in BBC that people now go into the top end of

the high street and later on think maybe I can get that from the down-market (bbc.co.uk). So a

company has to consider as competitor everyone whoever in this industry. That’s why primark

consider its competitors not only the Matalan who is offering the same price cloths but also the

premium price company such as BHS, Debenhams or Next. Primark is doing better over its

competitors while BHS; Next & Matalan are finding themselves squeezed by the competition

(bbc.co.uk).

1.3 Internal analysis:

The internal analysis is determined to find out an organization’s strengths, weaknesses and the

strategic capabilities by those it can gain an overall picture of its strategic position.

The model helps to find out the strengths and weaknesses of primark is SWOT which is provided in

Appendices 3 with details.

1.3.1 SWOT analysis for Primark:

The strengths of primark give an advantage to do the business over its competitors. Primark are

gained in its simple, systematic and organized business structure, having assigned right authorities to

right position. The good value of money creates a reliable and trusty primark in customer’s mind

who can rely on primark as a fair company. According to 2010 financial statement its has a revenue

of £2730m and a profit of £341m which may describe why primark is so strong at the

moment (abf.co.uk).

This all strengths may be the secrets of its success. It also attracts more customers from the top end

of the market and increase the number of customers what basically leads more margin end of the

year.

However, some of its weaknesses might decline the company’s image result in losing the sales.

Although primark is a member of Ethical Trade Initiative, study shows it has less value to ethical

issues such as using child labour by its suppliers. Compare to other retail company primark provides

poor working environment for its staffs which discourage the staffs to provide good customer

service to its customers. From the customer perspective it takes long time to serve them as there is

always a massive queue.

This all weaknesses may increase the company’s threats and it also create a bad image to the

customers’ mind which is not good for long term.

1.3.2 Strategic capabilities of Primark:

Strategic capability has two components which are resources and competences. Resources refer

what assets an organization has and competence refers what it gain and what the organization do

well using those assets. Strengths also give capabilities to an organization to survive longer in the

market. As resources primark has experienced managers, thousands of employees, suppliers,

machines, premises, products, patents and so on. The effectiveness of using these resources may

describe how successful it is. For example, one of its core competences is cost which is really hard to

overcome by Primark’s competitors as its other resources help it to get economies of scale and to

get ways of achieving efficiency, productivity which result in a successful primark in the retail

industry. It also offer competitive advantage and cope up with the environmental changes.

2. Current strategy of Primark:

Every business must decide how it should operate in its particular market and how it will compete

against it’s competitors on a range of dimensions including product, features, pricing, quality,

branding and distribution channels and so on( Johnson et al,2011). Now in the business environment

every company wants to gain the competitive advantage that leads the company to be competitive

over its competitors. Some want to gain the advantage by offering consumers greater value, either

by means of lower prices or by providing greater benefits that let the company to charge higher

prices. To identify on what the company want to get advantage it needs to target the strategy it

wants to go. The model is used to identify which strategy primark adopt is Bowman’s clock strategy

model which offer various choices for the company to adopt. A detailed of the Bowman’s strategy

clock model is provided in appendices 4. By looking at the Bowman’s strategy clock and at the same

time primark business environment and business market it can be said that primark follows the low

price strategy which is the 2nd strategy of bowman’s clock strategy model.

2.1 The aim of the low price strategy:

The aim of the low price strategy is to offer low price products to the customers by reducing the

costs of production or purchasing. It also aim to be cost leader in the market by cutting selling prices

and then beat rivals on prices.

2.2 How primark does it:

Primark is capable to offer value and low prices to its customers because its business model is based

on high sales volume and in return low margins with minimal advertising.

Source: www.thetimes100.co.uk/case-study-providing-consumers-with-ethically-sourced-garments-158-412-3.php

The company keeps the costs down by buying in bulk from its suppliers which enable the company

to achieve the economies of scale. In addition it keeps the prices down through lean production and

efficient operational practices. For example, it uses off-season factory time for production. It means

the costs are lower than at peak time. Primark also uses the foreign suppliers where the labour costs

are very low for example, China, India and Bangladesh. But Lawton (1999) argues that the rivals can

and will do all these. So he suggests having a great market share might be one of the possible

answers to have the competitive advantage. The research shows that primark grew its market share

by volume to 10.9% which put it as the UK’S largest clothing retailer (www.retailweek.com).These all

give primark to achieve the cost efficiency and the low price strategy which lead primark to gain the

competitive advantage over its competitors.

2.3 Benefits of this strategy:

The benefits of having this strategy probably give primark:

They are often the market leader because they probably able to provide the cheapest

products. Compare to the competitors primark are always cheaper. In 2010 it got the Best

outfit for under £50 award by fabulous high street awards 2010 which is not possible by its

competitors (www.primark.co.uk).

It also helps the company to win the price wars. Sometimes it is seen price war particularly

in those companies who provide low price products. Everybody wants to be cost leader in

the market leads to a price war. Although primark has some competitors such as Matalan or

super markets (Asda, Tesco) and want to take over primark but they cannot beat primark. Its

low price strategy, economies of scale and larger volumes of products and market share

keep it at safe side.

It also creates a barrier to entry. This is quite a bit unattractive strategy because it doesn’t

make higher margins unless company like primark. Primark has large market share, it buys a

large volumes from the suppliers which enable them to cut their benefits and reduce the

production costs. So no new entry does want to enter the market as it is really hard to

sustain in the market.

2.4 The threats of having this strategy:

However, this strategy has some threats as well. If the cost leadership is lost then there is a fallback

position because there might some other larger international rivals will enter the markets who try to

get the market share.

3. The possible effect of the changing environment on the future of Primark:

The future of any company is not easy to predict. But looking at company’s strategy and current

position there might guess of the future as the business environment change constantly.

Although on the recession time primark did better but it might affect its future growth and future

sales. Because recession indicates consumer less spending power what will squeeze them more. As a

result they will make fewer purchases what might affect the company’s sales. People might look for

open market or charity shops where they can buy their clothing necessities.

Besides offering cheaper cloths primark needs to think about its customer’s service. As customer

service is one of the vital thing for doing business so primark need to improve its service specially the

waiting time in the queue. It is often customers need to wait in queue about 15-20 minutes depends

how busy it is. It might reduce primark market share in the future if any competitors enter in the

market and provide the same price products with a better service.

Recently two things hit directly UK retail cloth industry one is VAT rose to 20% and high cotton

prices. Although they are not a bigger issue for premium prices competitors but they will have great

affect on company like Primark who follow the low price strategy. Because of the increasing VAT and

higher price on cotton will increase primark production costs result in primark will have to bound to

increase the price. As a result the future sales will be decreased and company’s profit margin will go

down.

As globalization changes people shopping style, they more likely spend more time on internet. Some

of the social networking such as Facebook and Twitter has made a significant impact on consumer

preferences. People are so trusting- even sometimes on strangers. Because of these social

networking sites some other people can generate impact on consumers. Everybody knows what is

new, what is cheap and what is not, what must try and what must not because of the social media.

So this might affect on primark unless they promote their marketing mix in the blogs. Although it has

a facebook page but still it has to upgrade the page on the daily basis because here consumers tell

the company what they want which helps the company to get the new product suggestions and at

the same time consumers think as part of the company.

Some suggestions for Primark:

There is no doubt that primark is doing well in the retail clothing industry which can be seen looking

at its finance performance of the last year. But there are some sites primark still needs to improve

which will enable the company to gain its weaknesses and reduce the threats resulting sustain a long

time as a cost leader. They are:

Although primark joined the Ethical Trading Imitative, a collaboration organization to keep

eyes on ethical issues but still it needs to look at all suppliers more seriously as media always

after the primark.

It needs to reduce its customer waiting time may be by adding more cash points and by

recruiting more employees.

To stick as a cost leader in the market may be it needs to think to switch to something

alternatives but trendy. For example encouraging the consumers to buy Polyester or other

Synthetic fibers or it can open a new business unit such as new cotton mill or garments,

this will reduce the production cost.

It also needs to motivate its staffs so the customers can expect better service.

Appendices:

Appendices1:

PEST factors for Primark:

Political factors:

Government has imposed VAT to 20%- Government has risen the standard rate of VAT from 17.5% to 20% as Government looks to boost tax revenues to cut its deficit.

Limitation on what can be sold-primark was accused for over padded bikini for girls aged 7 so it was bounded to take that off from the market.

Restriction on product design-because of the restriction on product design it took the bikini off.

Economic factors:

Inflation

Strong currency compares supplier’s country

Recession

Social factors:

Social mobility

Ageing population

Increased female buying power

Technological factors:

Greater use of internet

Greater use of social networking sites

Appendices2:

Porters 5 forces:

The threat of new entry:

The economies of scale

In industries, economies of scale are extremely important. Once the company reach the large scale production it will be very much expensive for new entrants to match them and until the entrants reach at similar level they will have higher costs. To get the economies of scale there are high investment requirements for entry.

Access to supply and distribution channel

Sometimes it is hard to get in to the key suppliers and distribution channels because the suppliers and the channels have contracts with the existing players.

The power of buyer:

Low switching cost: if there is no switching cost or low switching cost then buyers can easily move from one supplier to another and buyers have more power on suppliers.

The power of supplier:

Concentrated suppliers:

When just a few suppliers dominate supply, suppliers have the power over the buyers.

High switching costs:

If the supplier has built up switching costs that are fixed and the buyers have to face in changing suppliers. Then the supplier has a high power as for the buyer it is expensive to switch to another supplier.

The threat of substitute:

Due to the current economic condition the product demand has reduced as customers switch to alternatives. Offering substitute within the same brand such as different pricing levels for a specific garment is more likely to keep a loyal customer base and stops them looking elsewhere.

For primark in UK the direct rival is Matalan who also try to offer cheaper cloths. Tesco and Asda have also introduced cheaper alternatives. So with them in mind, the threat of substitute is high.

Competitive rivalry:

Primark competitors:

Although in terms of quality Mark & Spencer, BHS, Debenhams are better but still primark considers them as its competitors. But in UK Matalan is one of the biggest competitors for Primark who wants to be cost leader like Primark.

Competitive rivals are those organizations who have similar products and services aimed at the same customer group. The factors that create competition between rivals are given below:

Competitor balance: where competitors are of roughly equal size there the danger come up as the competitors want to gain dominance over others, through aggressive price cuts for example.

Industry growth rate, High fixed rate and High exit barriers also create competition between the competitors.

Appendices 3:

Swot analysis:

The strengths and weaknesses are identified below as the opportunities and threats were identified in PEST analysis.

Strengths:

Strong customer trust.

The economies of scale

Great value for money

Simple, systematic and organized business structure

Weaknesses:

Poor working conditions

Less quality products compare to Hybrid Company who probably do cheap products as well.

Customer service is not as good as some other shops

Less concern on ethical issues

Appendices 4:

Bowman’s strategy clock and its analysis:

The Bowman’s strategy clock is a development of Porters generic strategies. The strategy clock has got two distinctive features. The first one is, it is more market focused than the generic strategies. It mainly focuses on the prices to customers rather than costs to the organization. Secondly, it allows more choices to the organization while Michel Porter argue if a company doesn’t stick with one of the three generic strategies which are cost leadership, differentiation and focus strategies, then it will stuck in the middle. Bowman describes his strategy clock into eight routes on the basis of two aspects: the price of the product and the value or quality of the product.

Source: www.marketingteacher.com

No frills:

The first strategy he says is No frills strategy which combines a low price, low quality and a focus on a price sensitive market segment. It can be viable because there may well exist a segment who can not afford the better quality product.

Low price strategy:

The low price strategy seeks to achieve a lower price than the competitors and at the same time try to maintain similar value of product to that offered by competitors. In this strategy the expectation may be to gain efficiency year after year without loosing any quality. To get this strategy organization needs to reduce the production costs which can not be possible by the competitors. Then a low price strategy might give sustainable competitive advantage.

Differentiation strategy:

The fourth strategy a company can follow is the differentiation. This strategy seeks to provide products unique or different the products from its competitors. The aim is to achieve higher market share by offering higher quality products than its competitors than its competitors.

Hybrid strategy:

The hybrid strategy seeks to achieve differentiation with lower price than competitors. It can be achieved by having the ability to understand the customer needs in terms of quality products and having a cost base that permits low prices. It also needs to have sufficient investment to maintain and develop bases of differentiation.

Focused differentiation:

A focused differentiation strategy seeks to provide high quality products than the rivals and charge high prices for these.

6, 7 & 8: Failure strategies:

Bowman says probably strategy 6,7 and 8 are destined failure. Strategy 6 shows a higher price without increasing any quality to the products. Strategy 7 is an even worse than strategy 6 which just try to reduce the quality of a product whilst increasing relative price.

Bowman’s final strategy which is strategy 8 reduce the quality of a product but price as same as the differentiation strategy.