BENETTON(A)

BY Prof. Sergio Signorelli & James L. Heskett

CONTENTS

SITUATION ANALYSIS PROBLEM STATEMENT OPTIONS CRITERIA FOR EVALUATION EVALUATION OF OPTIONS RECOMMENDATION ACTION PLAN CONTINGENCY PLAN

SITUATION ANALYSIS

World leader in knitwear Increasing competition in Italy and Europe from firms emulating elements of its strategy Saturation point in Italian markets Stagnant economy Reducing profits and accumulating inventories Immense opportunities for the company to expand in European Market High competition coupled with unknown brand name in U.S. markets

PROBLEM STATEMENT
How to deal with current market saturation and increasing competition

OPTIONS

Enter the US markets now Concentrate on consolidation of European markets now and enter the U.S. market later Enter the Japanese Market Diversify Product lines in Italy

CRITERIA FOR EVALUATION

COST COMPETITION MARKETING CHALLENGE GLOBAL ECONOMIC CONDITIONS

EVALUATION OF OPTIONS
1) ENTER NOW
COST: Huge initial investment- $70000 for each small shop Higher labor cost(50%) Cost of promotion ($2 MILLION) Cost of distribution-$10 million to set up a new plant, loss of inventory savings to set up new warehouse, increased transportation cost if direct distribution MARKETING CHALLENGE: Setting up a distribution channel Media planning and allocation Increasing popularity of Italian Brands in U.S.

COMPETITION: Stronger competition from existing players like Levi Strauss Stronger media presence of competitors($100 million on advertising) No brand presence of Benetton American preference for easy-to-care garments, but Benetton- CORE COMPETENCE- natural fibers Greater scope in U.S due to large size of market GLOBAL ECONOMIC CONDITIONS: Recession

2) CONSOLIDATE IN EUROPE NOW AND ENTER U.S. MARKET LATER

COST: Setup costs lower- can leverage on existing network Lower labor costs Higher inventory savings Lower promotional costs as Benetton name already known Cost of conducting preliminary research of the US market simultaneously MARKETING CHALLENGE: Easier Product- better command on European fashion Price- lower cost- lower price Place- easy to set up a distribution channel, leverage on existing network Promotion- Benetton brand presence in Europe

COMPETITION: Potential to exploit market of European countries Also important to consolidate in core Italian market Intense competition in U.S. GLOBAL ECONOMIC CONDITION: Less risky to enter stagnant European market than recession affected U.S. Market

3)ENTER JAPANESE MARKET

COST: Low labor Cost in Asian market Less Technology Cost Set-up cost COMPETITION: More competition from local brands-prefer silk clothes MARKETING CHALLENGE: Setup distribution Channel Language Barrier Brand Promotion difficult No similarity between Japanese and European fashion Aging Country-less youth GLOBAL ECONOMIC CONDITIONS: Asian countries less hit by recession

4) DIVERSIFY PRODUCT LINES IN ITALY

COST: Innovation cost Promotion Cost MARKETING CHALLENGE: More advertising and promotion required Can leverage on existing network COMPETITION: High competition from existing brands of the product lines being introduced Not our core competency GLOBAL ECONOMIC CONDITIONS: Stagnant economy

RECOMMENDATION
After assessing all the options, it is recommended that Benetton: should identify other potential European markets like France and Belgium where it can expand its base should not enter American markets at present and should look at entering these markets at a later and more appropriate stage

ACTION PLAN

Identify potential European markets where we can sell our products and hence expand our base. Culture-specific product offering and store formats Excess inventory of Italian market can be distributed in other European countries without incurring massive costs. Gather information about American markets through proper market research for future purposes.

CONTINGENCY PLAN

In case of an unwelcome and unexpected event, we would reanalyze our action plan and would diversify our product lines in Italy