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Analysis of U2 Marketing Environment

U2 is positioned as an apparel chain store operated under G2000 (Apparel) Limited in Hong Kong.  They target at .outgoing, young-at-heart, trend led men and women who will strive to create their own individual look・ (More about U2, 2001).  They have established over 300 outlets in the region covering Hong Kong, Macau, China, Singapore, Taiwan, Malaysia, Thailand, Indonesia, Korea and some Middle-East countries.  With the Asian economic crisis in 1997 and the fierce competition in the clothing business, their performance is below satisfactory comparing to their competitors.  Their direct competitors, Giordano and Bossini, are able to sustain their competitive advantages by providing quality and fashionable products with low prices in Hong Kong.  This is to analyze the elements of the marketing and competitive environment, which are most likely to influence the development of a suitable marketing mix for U2 in the Hong Kong market.

The marketing environment includes macro-environment and microenvironment.  The macro-environment consists of .the larger societal forces that affect the whole microenvironment・ (Kotler et al, 1999).  The microenvironment is also the competitive environment, which is .the forces close to the company that affect its ability to serve its customers・ (Kotler et al, 1999).

The marketing environment (macro)

The macro-environment includes economic forces, political and legal influences, demographic trends, socio-cultural changes, technological changes and natural/green factors.  These are the factors that always viewed as .uncontrollable・, however, proactive marketers should recognize and understand these elements to identify opportunities and remove threats for their business. 

Economic forces

Economic is a major external factors that affects the use of resources to a company (McCarthy et al, 1999).  The economy of Hong Kong returned to positive growth starting second quarter of 1999 since the downturn of Asian economic crisis - GDP registered 10.5 percent real growth, the highest since 1987; local consumer spending grew by 5.4 percent in real terms; the rate of deflation with the composite CPI moved from V5.3 percent in January 2000 to V1.8 percent in December 2000; and the rate of unemployment declined from 6.3 percent in 1999 to 4.3 percent in the quarter ended 31 January 2001 (The 2001-02 Budget, 2001).  Unfortunately the recovery is affected by the evaporation of information technology, the rapid slowdown of the US economy, continued economic stagnation in Japan and slower growth in domestic demand in East Asia.  Most people are lack of confidence in the future especially those who have not yet experienced an economic improvement such as the group of lower income.  The pessimism stifles consumers・ willingness to purchase.  Also the purchase power decreases due to a drop of real income, the consumers become more price and value conscious and will look for products that are basic and functional (Dibb et al, 2001).

In addition, Hong Kong retail business is mostly influenced by the tourist industry.  There were more than 13 million tourists visited Hong Kong and total income from tourism exceeded HK$60 billion, contributing about 5 percent of total GDP in year 2000 (The 2001-02 Budget, 2001).  Hence the stability of various economies of the world is also crucial as changes in one economy affect others.  For the tourist consumers, U2 can use advertisements inside the airport to promote their products to create awareness from the foreigners.

Increasing profitability with appropriate marketing mix is essential for a company・s survival in an economic downturn.  U2 should develop their products that provide good quality and functional products with low price that compatible with consumers・ perceived benefits.  For example, Giordano is promoting a pant with zip at knee so that it can be dressed as a pant or a short V this can be an extra product attribute to attract the consumers.  U2 can also stimulate purchase power by their promotion program.  Giordano used introductory offer (like 50 percent discount for first week introduction, 30 percent discount for second week and so on) last year and this new idea on clothing was effective to increase sales.  Bossini also discounts their off-season products every month since 1997 as to stimulate sales.  U2 can use promotion program such as free gifts for more than a purchase limit.  The gifts can be at minimal cost such as a telephone string or handkerchief to increase the willingness of purchase.

Political and legal influences

In Hong Kong, Donald Tsang Yam-kuen, the Financial Secretary will take over as Chief Secretary for Administration from Anson Chan Fang On-sang in May 2001.  Most people expected that there would be changes in political and legal environment in Hong Kong because Tsang is more closed to the Chief Executive, Tung Chee-hwa.  People also believe that the .One Country, Two Systems・ would be challenged as the political and legal would be gradually tightened by the Beijing government through Tung.  The political stability in Hong Kong would definitely affect the willingness of purchase as it is directly related to the confidence of the consumers. 

The recent spy plan incident and the Taiwan stance have intensified the precarious of the China-US relations.  This has worried a lot of investors especially those from the US who have significant investments in China and Hong Kong.  The political stability of the other countries would also have dramatic effect on opportunities at a local or international level, such as the requests of changing of presidents/prime minister in Indonesia, Philippines and Japan.  The confidence level of the investors would be affected by these factors and hence also influence the purchase power of the consumers.

Confidence level is a difficult issue to overcome.  During the June 4 Tian On-men issue, the confidence level of Hong Kong people had lowered to the bottom.  Giordano was successful to turn this threat to an opportunity by offering t-shirts with the photos of student leaders, though it was sensitive and would be a copyright problem now.  In this economic downturn and political instability, U2 can use this opportunity to build up their brand image such as using slogan like .tomorrow will be better・ or whatever to gain recognition from the consumers. 

Legal is also a factor to influence marketing mix.  Consumer protection aims to protect consumers from misleading and unfair marketing practices, and provides mechanism for safety and information standards (McCarthy et al, 1999).  For example, in the clothing business, children clothing with brushed effect must pass flammability and all the clothing must state the proportion of each type of yarn used as well as the washing instruction.  U2 should train up their employees for such kind of consumer protection.  They can also set up a hotline to answer any questions related to clothing.  This can be a good integration to their promotion programs.  Meantime, they can also use special fabrics such as wrinkle-free or super dry knit and label them as the special function of the product.

Demographic trends

Hong Kong has an upward trend in population growth and it is almost 7 millions people in this small country.  The major reason is the immigrants from China.  In fact there is sufficient evidence to show that Hong Kong has clear trend towards smaller family sizes.  Figure 1 shows the population comparison by age group in year 2000 and the younger group in age 0-29 accounts for 38 percent (Frequently asked statistics, 2001).  The dual-working family can now afford to purchase more due to increasing number of working women.  The young generation is benefited to study up to university qualification and starts to work late meaning a rise number of educated people, and rise in personal income to increase the power of purchasing.  On the other hand, the income generated by working women also gives them new independence and purchasing power.

By understanding the demographic trends, U2 can target their products to a more specific group such as the group in age below 29 because they can afford to purchase more and are most likely the influencer in the consumer buying process.  Intensive promotion programs such as TV advertisements should be used to increase the awareness of the brand and build up interests from this target group.

Socio-cultural changes

There are continuous changes in social and cultural that have significant impact on the consumer buying behavior.  People do not persist to hold their beliefs and values anymore.  For example, marriage is no longer a life promise and some women even do not get married but prefer to be a single parent.  Another extreme case is the increasing of gay and lesbian, which challenge the culture of the community.  As people are more educated and the living standard is higher, they are brave to express their opinions and no longer satisfied with basic needs.  They like to express themselves by obtaining a higher level of satisfaction and hence, the products they use must be compatible with their new beliefs and values.  Clothing is no longer used as protection but rather an identification of self.

U2 should conduct more marketing researches in understanding the behavior of the consumers.  There was a strong trend in street wear, as the people did not like to be framed by good dressing code.  They dressed with big tee and bulky pants to demonstrate that they were the young generation who could accept new things (though some over 30 dressed in this way too); they loved freedom; they loved mix and match to show their taste.  Products that achieve both basic and self-esteem needs are one of the competitive advantages.  The shopping pattern of the target group is also important for the development of marketing mix.  The young generation likes to walk around different shops at same time but needs to be convenient.  Big shopping malls are those places they love to stay with.  This affects how U2 plan to locate their shops to meet with the consumers・ needs.

Technological changes

The technological changes affect the way an economy・s resources are converted to output (McCarthy et al, 1999).  The most significant of the advance of technology is on the processes of work.  In the past, garment production was almost hand-made so it needed a very long lead-time.  With the aid of technology, for example computer-aided design and computer-aided manufacture, the product development and production turn time has been greatly reduced.  The technologies also help to improve the quality and speed of the products and services.  .Electronic Point of Sale (EPOS) systems provide retailers with regular up-to-date information on product and sales・ (Warwick MBA: Market Analysis, 2001).  U2, in fact including their competitors, has used EPOS for years.  It is efficient and effective to control its stock level and assess the effectiveness of its marketing programs.

The marketers can also use marketing information system to identify opportunities by understanding the present markets and prevent their competitors to be more successful.

The world is also reduced by telecommunications and information technology.  By using electronic mail, facsimile, tele-conferencing or video-conferencing, it reduces time of traveling and gets instant communication.  The Internet also helps to reduce the distance between the companies and the consumers.  U2 has taken the advantage of the Internet as a promotion/feedback tool with their consumers.  The implication of such change means faster and more accurate feedback to provide ideas for improvements and innovations for product development.  It is not a bad idea also for U2 to promote online shopping for those segments that do not have time to shop at daytime.

Natural/green factors

The environmental concerns have grown in Hong Kong in the past five years although it is later than the other countries.  The HKSAR government tries to promote the green education through a lot of activities such as advertisements and campaigns. Most people in Hong Kong now have a better understanding that protection of natural environment is crucial for the next generation.  The natural/green factors also relate to retail business.  For example, the raw materials of packaging are also come from natural resources.  Hence a neglect of this factor will not only create shortages of raw materials but also arose negative reaction from the consumers.  U2 can use this factor to build up their image by using recycle polybag and shopping bag.  Levis has used this approach for years to build up image for their company. 

The competitive environment (micro)

Except the marketing environment discussed above, it is also important to evaluate and get in-depth understanding of the competitive environment in the clothing industry.  Porter stated that .the strongest competitive force or forces determine the profitability of an industry and so are of greatest importance in strategy formulation・ (Porter, 1979).  He has identified five factors that influence an industry・s competitiveness, that is, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes and rivalry of existing competitors.  Figure 2 shows the clothing retail business in the Porter model:

Threat of new entrants

There is no huge set up and R&D cost for the clothing retail business so the threat of new entrants is high.  Hence there are a lot of large or small retail stores in Hong Kong.  Elle is a fashion magazine but was attracted by the opportunities of clothing market and started its retail business few years ago.  Other branded labels extend their lines to gain different market segments.  For example, Giordano has another line for ladies office wear and Bossini has recently set up a kid・s line. 

As U2 is positioning at low price market, the sources of barriers to entry are economies of scale and access to raw materials and suppliers for lower prices.  Brand loyalty is low as consumers in the segment are more price and value conscious.  Thus U2 should deliver superior product benefits and customer service in order to establish company reputation for quality.  In addition, they can also offer innovative features of product options to attract consumers・ loyalty.

Bargaining power of buyers

.The bargaining power of buyers depends on the number of buyers in a particular market, their size and their purchasing power・ (Warwick MBA: Market Analysis, 2001).  Thus the bargaining power of buyers in the industry is high because in a broader view, all the people in Hong Kong might be their consumers.  The consumers can always find alternative brands, as the products are undifferentiated V or any differentiated products can be imitated easily. 

To keep up with the competition, U2 should increase the consumers・ willingness to purchase by several approaches.  They should demonstrate the benefits already offered through intensive advertisements to remind the consumers to purchase their products.  They should also develop new products with benefits that will be more appealing to their target segments.  Product appeals should also include quality control, reliability, distinctive performance features, the ability to meet consumers・ needs and the compatibility with their product lines and the target consumers (Guiltinan et al, 1991).

Bargaining power of suppliers

Starting 1980s, clothing industry has been expanding to a global sourcing.  For example, India and Pakistan can offer good quality fabrics in addition to Asian countries, Europe and the US, Japan and Korea has distinctive techniques in printing other than China and the US.  The competition of these suppliers are fierce as the buyers can find any cheaper prices from anywhere of the world.  Therefore, the bargaining power of suppliers is low. 

U2 can either adopt backward integration or outsourcing.  For backward integration, they can do by acquisition of fabric mills and garment factories.  There are certain benefits in this way.  They can lower the costs of make and materials, which can further lower prices of the products.  They can control their production capacity and also the quality as well as operational efficiency.  They can respond to the market faster with their own control.  However the investment costs would be higher and U2 should consider the pros and cons of this strategy.  The benefit for outsourcing is basically investment cost-wise.  They do not need to worry when there is under or over capacity.  But they need to put extra efforts on costs of make and materials, and the quality of products.  Hence a good network relationship with their suppliers is critical for success (Doyle, 1995).

Threat of substitutes

Clothing serves as a basic need so it is not likely there are alternative products to replace them.  The threat of substitutes is low or minimal.

Rivalry of existing competitors

The rivalry of existing competitors is intensive for several reasons.  Industry growth is low leaving market share gains as the only avenue to growth.  In addition, the competitors such as Giordano and Bossini are roughly equal in size and power.  Their products are perceived to be no differentiation.  Economies of scale is significant creating the temptation to cut prices to build volume.  Finally, the cost to the consumers of switching from one chain store to another is zero.  Therefore, in this intensive competition industry, frequent direct observations of other competitors are vital for survival.  U2 should use the technique of reverse engineering to analyze their competitors・ product・s attributes, to determine the cost of production, and sometimes to even copy the technology (Guiltinan et al, 1991).  They should also use the marketing information system to monitor the competition and changes.  

As a conclusion, marketer should monitor their environments as the markets are increasing turbulent and complex.  They should understand and sensitive to the elements of marketing and competitive environment to adjust their marketing mix.  They can also identify any opportunities and remove threats from these changes in order to maintain survival.


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