Burberry Strategy Essay
It is important for every business to clearly understand how resources and capabilities affect firm performance. As Grant (2005) defined, resources are the productive assets owned by the firm and capabilities are what the firm can do. In fact, companies that have sustainable competitive advances have been developed and exploited based on their internal resources and capabilities. Furthermore, they have successfully exploited external environment. In this essay, I will explore the topic area of ‘Resources & Capabilities’ with regards to a UK’s fashion group; the prominent designer label, Burberry GRP. In particular, the research will focus on the Strategic Business Unit of Burberry; understanding and explaining how they utilize the resources and competencies to achieve a competitive advantage.
In order to do this, this paper will address on theory based from work in the areas of the ‘Resource-Based View’ and ‘Resources and Capabilities’ as well as using theoretical frameworks to give a holistic view of the strategic issues Burberry. After their reform, Burberry recovered rapidly, after the crisis of September, 2008. With 500 stores in over 50 countries, total revenues grew from 27% to £1,501 million which is more than double its nearest rival, Chanel (with total revenues of £ 651, 3). Retails revenues reached £ 962 million and wholesale achieved £ 441 million (Burberry’s a and Chanel financial report, 2012). As a result, Burberry has substantial surplus resources and is therefore able to withstand and compete in the hypercompetitive fashion market sector. Thus, Burberry achieved brand value up to more than £ 2, 5 billion in 2012. Gucci, Prada and Chanel gained approximately of £ 5.8, £ 4.95, and £ 4.2 billion respectively.
The Resource-Based View
In 1990s, the role of resources and capabilities become known as the basic for firms strategy and the primary source of profitability coalesced has become the resource-based view. Resources and capabilities are an important component of strategy to archive the competitive advantage. According to the resource based view (RBV), assets and capabilities create value for the firm that leads to a sustainable competitive advantage (Hall, 1993). Burberry, Chanel and Gucci all compete in the same environment, yet Burberry is superior in performance.
A Resource-Based View argues that Burberry is distinguished not by the environment, but by their internal resources. Peteraf (1993) adds to this view by arguing resources have to be heterogeneous and not perfectly mobile in order to transform a short run competitive advantage into sustained competitive advantage. Based on Grant’s model, through VRIN frame work, this research will now find out how Burberry use their resources to initiate their organizational capabilities and competences and ultimately achieve their strategic Capability.
As displayed in Grant’s model showed above, in order to maintain operations, companies must have tangible, intangible, and human resource. “Tangible resources are known to be the easiest way to identify and evaluate” (Grant, 2005), however, this author assert that intangible resources contribute to total asset value much more tangible. Also, Hall (1992) mentions, intangible assets like the “feedstock” of capabilities are essential for a sustainable competitive advantage. They are assets without specific physical forms; such as intellectual property rights, trademarks, copyrights, technical know-how, brand name, reputation and so on.
Prahalad & Hamel (1990) move away from the RBV and coined the term ‘Core Competencies’ to distinguish those capabilities fundamental to a firm’s performance and strategy. These are the organizational capabilities that are achieved through the effective deployment of a firm’s resources. Core competencies are distinctive and differentiating competencies that lie at the heart of an organization. This includes not just the products and services a company sells but also ‘soft’ areas of a company’s activities, such as branding, organizational innovation and service” (Hamel and Prahalad, 1994). Fréry (2006) adds to this view and describes core competencies as the basic building blocks for a firm’s corporate strategy. Burberry have two key core competencies in Brand Name and Digital Innovation.
With a luxury fashion brand such as Burberry, brand name and reputation are extremely important. Burberry has gone through many ups and downs on the path of development and it has many competitors that include: Coach, Polo, Armani, Chanel and Gucci and so on. While Gucci focuses on luxury accessories, Coach concentrate mainly on the production of bags ( as does Chanel) and also produces accessories that range from watches and shoes to scarves and dog collars, and Chanel focus on bags. Armani’s and Polo’s marketing positioning is more focused on clothing. Burberry has succeeded in penetrating both the accessory and luxury goods. Moreover, Burberry’s resources include its high brand equity, its popular trench coat product and its signature check design. It is has a long history serving with the soldiers of World War I and it has been well received by the Royals; once by Queen Elizabeth II and once by Prince Charles.
This means that customers now acknowledge them as the supplier of products to the royal family (Instyle, 2012). Referring to Burberry, customers immediately think of a luxury, high quality, and diverse fashion. However, in 1997, the new Burberry management knew that they could not rely on this benefit anymore. They realized that over the years, trends and customers change and become more diverse. From that issue, the new management believed that the problem with Burberry was undermined by a poor image and was now overly dependent on a narrow customer base comprising of middle aged, ‘fashion-conservative’ men (Fletcher, 2003). Their new strategy sought to change the position the brand of Burberry defined by ‘Britishness’, authentic outerwear heritage, historic icons, democratic luxury positioning, innovation and intuition (Burberry’s b annual report, 2011) which was aimed at the younger generation, while still retaining the traditional customer base.
Recent advertisement of Burberry has brought all the characteristics of the England, “from a British landscape with aristocratic looking models to edger advertisement with models in bikinis.” (Jacobson), They also make their mark on pop culture by using iconic British representative, such as model Kate Moss and the up and coming actress Emma Watson. Their use of reputable fashion photographers is also to be noted. Considering these factors, Burberry is targeted towards different segments of the population with one common theme, luxury.
With the advantage of the supplier of the royal, all of which attach a strong sense of ‘Britishness’ with the Burberry’s brand. In November, 2011 Burberry was again included in Interbrand’s Top 100 Global Brands; was awarded the 2010 British Graduate 100 Award for ‘Where Fashion Graduates Want to Work’; and was recognized as the 13th most innovative company in the world by Fast Company magazine, as well as receiving the Inaugural Innovation Award at the 2010 British Fashion Awards (Burberry’s c annual report, 2011). This means, Burberry has a strong and sustainable competitive advantage that hard to beat.
Competition has always seen as a great source for innovation, while other brands focus on decors the boring store, Burberry opened up a new era of shopping by digital. Its business is driven by: Digital focus and integration (Burberry’s d annual report, 2011). In danger of being consigned to history a decade ago, Burberry has undergone a creative and digital revolution under the direction of chief creative officer Christopher Bailey, who joined the company in 2001. (Clark, 2012). The news follows the launch of the brand’s ‘Runway to Reality’ strategy, which allows VIP consumers to buy items from its runway collections immediately, via an iPad app.
Also ‘Burberry Retail Theatre‘ was broadcast the brand’s Spring Summer 2011 women swear show live stream directly into 25 flagship stores worldwide, creating live simultaneous virtual trunk show events on 21 September 2010. Customers in store will explore the collection through iPads where they will be able to buy immediately through a custom-built Burberry app following a private viewing of the show on high definition screens spanning 3×3 meters. Burberry has been developing and testing over several months custom-designed, digitally charged in-store ‘Retail Theatre’ environments with enhanced acoustics and state of the art visual technology, creating the ultimate experience for modern luxury consumers. ‘Burberry Retail Theatre’ is at the heart of our retail growth strategy.
This investment in cutting edge technology in partnership with Verizon enables us to more closely connect the Burberry brand with our consumers worldwide. This interactive retail investment will enable long term sustainable growth well beyond these exciting global digital events.’ (Alexander, 2010) Moreover, the photo sharing website, which give consumers as well as fashion photographers a chance to try on iconic Burberry trench coat by online, allowing consumers to place immediate orders from the collection with a seven-week delivery. Burberry continued its digital democratisation of fashion with its Tweetwalk, partnering with Twitter to post backstage Twitpics of every look before they were sent down the runway, meaning the brand’s Twitter followers saw its runway looks in advance of fashonistas in the front row.
During the Tweetwalk the brand’s Instagram account was taken over by Mike Kus, the most-followed Instagram user in the UK (Burberry’s e annual report, 2011). With digital innovation, Burberry has to prove to the fashion industry all over the world that the fashion industry needs to keep with the new shopping generation with lively images rather than images on the magazine and yet the luxury customers now very knowledgeable and they quickly make purchase decisions. Grab their attention in the digital boom trend is also the best way to Burberry became the first brand to appear in the consumer’s mind, rather than a different brand.
Sustained Competitive Advantage
Here have been many academics that have critiqued the Sustained Competitive Advantage over the years. According to Barney (1991) “to have sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy”. Some other authors have suggested that a sustained competitive advantage is simply a competitive advantage that lasts a long period of calendar time (Jacobsen, 1988; Porter, 1985). In relation to Burberry, they have high negotiating powers with suppliers because they can offer unique products with the sophistication, elegance, a sense of pride to customers because they wearing what the Royal family do. Their resource is rare and it is this uniqueness that offers them value with regard to suppliers and customers. Their core competences allowed them to create the exceptional customer value assets that set it apart from its competitors. (Hamel and Prahalad, 1994).
It is important for every business to clearly understand how resources and capabilities affect firm performance. In fact, companies having sustainable competitive advance have been develop and exploit based on their internal resources and capabilities. This paper has illustrated how Burberry has maintained its competitive advantage in the face of exhaustive efforts from its competitors by using its resources and capabilities such as brand name and shopping through digital technology. In fashion industry, a usual strategy is brand name, and Burberry is no exception. This strategy aims to through more coordinated use of brand assets and greater integration of its global organization, Burberry has more opportunity to enhance consumer responsiveness and operate more efficiently and effectively.
Furthermore, the company has also expanded its customer base with introduction a new aspect of the brand is defined by ‘Britishness’, authentic outerwear heritage, historic icons, democratic luxury positioning, innovation and intuition (Burberry’s f annual report). As brand name strategy is rather common among fashion, Burberry has attempted to bring in some differentiation to stay ahead. A breakthrough in the transition from conventional shopping to shopping combined with enjoys the overwhelmed digital features and sound. “Fashion is supposed to be about making things relevant. Yes, it is luxury. Yes, it is aspiration. Yes it is supposed to be inspiring.
But I think there is nothing more inspiring than talking digitally because you can get attitude, you can get music, you can get sound, and you can get video and movement. You can actually articulate so much of your brand using this medium,” (Vogue Chanel, 2011). Innovation of digital technology has a breakthrough in the fashion industry in general and in particular luxury fashion and Burberry is leader. It also allows Burberry to create the exceptional customer value assets that set it apart from its competitors (Hamel and Prahalad, 1994). It has created brand awareness, as well as establishes and reinforces a luxury positioning of Burberry.
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Subject: Balance sheet,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 17 October 2016
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