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United Colors of Benetton Essay

1. Benetton’s business in Italy is reaching market maturity.

Benetton’s revenues (billings) from Italy had levelled out due to market saturation, increasing competition, growing amount of imported merchandise and a stagnant economy. It should be noted that majority of the Company’s revenue is generated from Italy. In fact, out of $78 million sales generated by the Company in 1978, 98% of which were from Italy. Time is of the essence, the Management should immediately address this problem otherwise Benetton’s future viability and success will be compromised.

2. Objectives to solve the problem ( one sentence each)

a. Benetton should undertake to maintain its current market position and/or secure its current market share in the Italian market through product and system wide innovations as well as aggressive marketing promotions.

b. Benetton had already established a good reputation in the European market; hence it should undertake to increase its market penetration and work on consolidating the said market.
c. Benetton should capitalize on the growing popularity of Italian Fashion by developing other markets like USA and Japan with ultimate goal of becoming the market leader on a global scale.

3. SWOT Analysis

a. Strengths

Benetton dominated the Italian market and had established a good image and reputation in the European Market.

Benetton Group is a world leader in the design, manufacture and marketing of distinctive casual apparel. They are known for their good quality fabric and designs. Their clothes have international style that combines energy, colour and practicality. Branding and marketing campaigns have always generated to a lot of visibility.

Manufacturing innovations

Benetton, had over the years been an innovator in the production of knitted overwear products. For example, 10 years before the development of machinery for making hard and rough wool soft and pliable, Luciano Benetton had improved on a crude process that he had observed in Scotland for achieving this effect. In 1972, the Company began dyeing assembled garments rather than yarn. Benetton was the only major manufacturer of woollen garments that dyed them from gray stock.

The garment-dyeing capability allowed more popular items in Benetton’s line to be immediately produced in response to request for changes in preseason orders from retail outlets. Benetton had put fashion on an industrial level while the rest of the Italian fashion is still on an artisan level. Benetton’s commitment to innovations will allow the company to immediately response to the fast changing environment and future shift in customer taste. Efficient/stable supply and effective distribution network

Benetton had relied heavily on subcontractors and groupers for supply and manufacturing operations. Despite the innovations that lead to establishment of the Company’s own factories, subcontractors and groupers still performed about 40% of the Company’s knitting of wool, 60% of the work of assembling garments, and 20% of the finishing operations. The Benetton’s subcontracting network had allowed the Company a flexible production capacity that absorbed most the fluctuations in demand.

Benetton’s distributions strategy involves a large network of independent franchisees and resellers who invest capital on their own retail stores. These Independent Retailers in turns buys merchandise exclusively from Benetton and sell directly to retail customers. Through this unique distribution network, Benetton was able to reach more markets at low cost.

b. Weaknesses

Majority of merchandise are manufactured in Italy.

Benetton’s retailing strategy is anchored on good price-quality combination. Since all products of Benetton are manufactured in Italy the price of Benetton could not compete with an Italian competitor whose products are outsource from the Far East wherein labor cost is relatively cheaper than in Italy.

Majority of the retail stores carrying Benetton merchandise are owned by Independent Resellers Benetton was able to grow its retail shops/outlets in Italy and all over Europe but only few of the store outlets are actually owned by the Company. As a result, the company has less control over product positioning and the way merchandise is presented to consumers.

This raises the risk of inconsistencies and variations in consumer perception to the detriment of the overall brand. Moreover, relying on third-party distribution weakens business intelligence and customer feedback and generally creates a less responsive business model.

Internal Decentralization

c. Opportunities

European Market
Benetton had established good reputation in the European market. In 1981 Benetton Group acquired 50% interest in Fiorucci which gave Benetton entry to higher fashion markets. Benetton should capitalize on these strong points to increase its European market share. New product offerings through Joint Ventures

Benetton is reported to be considering a joint venture with a French perfume manufacturer to produce new line of Benetton perfumes. Because of its good image and established reputation, Benetton could easily find strategic partners to explore and diversify its product lines.

USA Market and Japan Market
Benetton could potentially capitalize on the strong image of Italian design and the growing popularity of Italian fashion in the United States. Its unique approach to retailing (franchising method) could make it possible to enter new markets and achieve global presence low cost.

d. Threats

Effects of Globalization

Through the years, Benetton has enjoyed the benefits Multiple Agrements in the European Economic Community (EEC) imposing restrictions or limits on imported knitted over wear from non –EEC countries. This trade agreement had controlled the entry of cheaper products from the Far East. However, this protection is will not be sustained to due to economic globalization.

Entry of new Italian competitors

Benetton had experience increasing competition in Italy and Europe, primarily from firms emulating elements of its strategy. Example is Maglificio Torinese, who has been operating shops for exclusive sale of Kappa Sport product line specializing in casual sportswear.

Rising customer Expectations and Speed of change

As a result of globalization, consumers want greater value in terms of lower prices and higher quality as well as solutions tailored to their individual needs. The changes in customer expectations, technologies and management policies have led to acceleration in the speed of change across all industries. Continual, incremental innovation has become essential to preserve market share and profit margins. 4. Marketing Audit/Gap Analysis ( 2 pages)

a. Marketing Audit

Internal Audit (What the company is currently doing internally to resolve the Company’s problem.

External Audit ( Analyze how Benetton is studying their customers to address the need of their customers

Competitive Audit (Who are the competitor of Benetton. Study why they are threat to Benetton

b. Gap Analysis (Based on Marketing Audit prepare a GAP analysis indicating how far the current position is from what the objectives require. Explain in 5 sentences.

5. Strategy Generation (Give 3 strategies to overcome the problem in number 1) 5 sentence for each strategy.

a. Strategy 1
Pursue strategic partnership (such as the French perfume manufacturer) to increase its product offerings but ensure the right price-quality combination and high fashion content are maintain with which Benetton is known for. Increase market presence starting with USA and Japan market.

b. Strategy 2

c. Strategy 3

6. Strategy Choice and explain why ( 5 sentences)

7. Implementation ( not longer than 1 page)

8. Control – should include time scales budgets. (Identification and description of each control should not be longer thant 5 sentences each.)

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