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Consumer Behavior: NEXT Fashion Retailer

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Introduction

NEXT is one of the largest global fashion retailers which have its wings spread across the world and has entered in all major emerging retail markets such as China and India. The mission of NEXT is to be the fashion retailer naturally chosen by stylish men and women who look for trendy, unique and quality wardrobe. NEXT’s expansion in the internet retail industry is in place now owing to the massive threats and challenges from the external environment. The main source of challenges is the social environment as fashion is greatly infused with the social aspirations of individuals (Barnes, 2010, pp.261). The report analysis the social environment and its impact on the consumer decision process and how the company is to respond to that to sustain profitability.

Market Analysis

Company

NEXT sells its own brands of women, men, homeware, garden, sportswear and various fashion accessories as well as various designer labels in its retail stores across the world. It has its own NEXT directory, where it sells its products online. NEXT International sells the products through licensed agreements to contractors and retailers present across the world stores. Ventura offers outsourcing customer relationship management services to various business clients in UK.

Customers

NEXT is positioned as the middle-market high street retailer. NEXT's customers are young, educated, upper middle and upper upper class, stylish individuals between the ages of 20 and 35.

Competitors

In the fashion industry it is the survival of the fittest and the fittest so far has been Zara which has recently taken over Gap as the world’s largest retailer (Barnes & Greenwood, 2010, pp.763). Compared with Zara, NEXT’s competitive advantage stems from its online store which has met a rise in the last two years and shows promising signs of the future.

The major players in the fashion retail market are divided into four divisions: middle market, variety retailers, low priced retailers and international retailers, as shown in Table 1 (Newman, & Patel, 2008, pp.775; Birtwhistle, 2010, pp.315).

Table 1: Fashion Retail Categories and Competitors

Middle Market

Variety  and Departmental

Low Priced

International

NEXT

Top Shop

 

Marks and Spencer

John Lewis

Bhs

New Look

Zara

H&M

Gap

In the middle market, NEXT’s direct competition is with Top  Shop, where its market share is 6.3% far ahead that of Top Shop’s but far less than the industry leader, Marks and Spencer’s 12% in the UK. On the internet, NEXT's competition is with high street retailers which offer online selling as well as purely online retailers (Barnes & Greenwood, 2010, pp.764). Following table represents the relative market share for NEXT in the online selling industry. NEXT is currently the market leader with close competition from ASOS. According to Guardian, ASOS was able to witness a booming sales record in the years 2009 and 2010 despite of the prevailing recession in UK. This information shows that online selling has the potential to succeed even in tough times and consumers are highly attracted to this market segment in fashion retail (Newman, & Patel, 2008, pp.775; Birtwhistle, 2010, pp.315).

Table 2:  Relative Market Share of Online Retailers in 2010

Rank

Retailer

Market Share

1

NEXT

7.81

2

ASOS

3.79

3

Top Shop

2.79

4

Zara

2.49

5

H&M

2.41

6

M and M Direct

2.41

7

Dorothy Perkins

1.61

8

Mother Care

1.55

9

La Redoute

1.42

10

Additions Direct

1.37

Conditions

During 2009, NEXT faced a financially challenging situation where revenues fell sharply by 1.7% and came down to £3,272m. By the third quarter of 2010, a fall of 3% more was witnessed in the revenue. This is a grave concern for the company, as revenue is expected to further fall when prices are forced to increase due to the rise in cotton costs. (Barnes & Greenwood, 2010, pp.764). The economic forces that produced an external impact upon the sales of the company arise from the prevailing recession which has limited investment and expansion activities by various retailers in UK (Birtwhistle, 2010, pp.318). The visible expansions and investments are in the form of low-priced stores to offer cheaper products to consumers to increase sales revenue, which have not accounted for a major rise in profits and have contributed to only 2% of the overall profits earned in 2009 for NEXT. Because of the sudden increase in the prices of cotton fashion retailers are suffering extremely high production costs. This will force the company to raise prices of products by 8% (Newman, & Patel, 2008, pp.777).

In developing countries, where retailer’s manufacturing units lie, the wage rate has risen. This is directly influencing the total production cost for retailers like NEXT and Marks and Spencer. This will offset the Euro revenues from presence in European markets of UK’s fashion retailers. Property rates have fallen because of the economic condition which presents an opportunity for retailers for expanding across UK, which is the home market of NEXT. But this has also invited several global retailers like Zara to gain sufficient market share in the retail industry.

Not only this but the fashion retail industry has witnessed several developments and trends which force fashion retailers to continuously upgrade their business models. Conventional practices and traditional styles of stores no longer exist as innovative in-store and outdoor marketing strategies and online stores have taken over the industry (Barnes, 2010, pp.259).

Business Strategy

NEXT’s C4 is an extension of NEXT’s Directory and a subset of its online division. Therefore it will not be treated as a separate business unit and will follow the same operational strategy and distribution strategy. It will be a source of attracting more young online shoppers towards its online selling division so as to increase NEXT’s overall profitability and increase its market share in the fashion retail industry. NEXT’s C4 is the move towards adopting the future of fashion retail before other competitors realise it and follow the same direction.

Goals and Objectives

The objectives are:

  • To take first mover advantages in the fashion retailing in the form of the unique and profitable idea of combining social networking with online shopping
  • To complement the NEXT’s Directory and NEXT’s Retail in brand marketing activities
  • To create an image of NEXT’s C4 as the first ever virtual fashion retail store that allows interactivity with friends
  • To sustain market leadership in the online retail industry and a higher market share in the retail industry
  • To obtain a 13% increase in operating profit in the first three years
  • To obtain a 4% increase in sales in the first three years.
  • To maintain minimum affect to the operational costs

Unique Selling Propositions

The website is to offer the following unique selling propositions:

  • A targeted fashion store for females who are socially active and style conscious
  • A low priced online store
  • A fashion retail outlet combined with social networking benefits
  • The new website to benefit from being under the umbrella of NEXT and its 6.3% internet market share

Market Segmentation

According to research studies taken on online shoppers, the age group of 18-23 year-olds are more dominant in their presence on social networking websites and are more exposed to the fashion marketing being done using these networks. 18- 30 year olds are the major target segments of online fashion retailers. These people are actively involved in social networking websites (Kim, 2005, pp.211). A large customer population that is present on social networks takes into account the views of social groups upon making purchase decisions. This population mainly constitutes females who seek fashion updates from the social networks (Hines, 2009, pp.142). Online shoppers feel that the existing websites do not offer a high level of social interactivity and suggest that they will purchase more if they are given a change to shop at an online store that enables them to chat with friends and share opinions before they purchase (Barnes, 2010, pp.263).

NEXT’s C4 is to be positioned in the middle market retail and low priced retail markets through cleverly designed product lines that offer products priced at the middle market rates as well as the low priced market rates to capture customers from both ends. Demographic and psychographic basis of segmentation are used to develop the following customer profile of NEXT’s C4 as identified by the market research report as the most attractive segment to target.

Table 3:  NEXT’s C4 Target Customer Profile

Age

18-30

Gender

Female

Occupation

Student or Young professional

Income to Spend on Shopping

Up to £60 per month

Social Position

Fashion Innovator, Fashion Follower

Special Characteristic

Linked with social networking websites and social media

Positioning

The brand of “Chit Chat Chic Club” is complete affordable fashion outlet for young girls, which is a virtual replication of a real fashion outlet where the girls can search clothes, rate each other’s outfits, purchase outfits based on opinions and likes of friends and benefit from constant interactivity with the store and their friends. The store is to compliment the NEXT’s Directory as an online store designed for girls which also functions as a social networking website.

Impact on the Consumer

Perception, Learning and Memory

Fashion followers want the latest fashions in wardrobes immediately to be on displays of fashion retailers as soon as celebrities are spotted wearing them   on the runway or on a show (Barnes, 2010). This is attributable to their aspirations to own what the well-off own and be how the well-off are. For this, they seek the fashion retailers that provide the similar outlook to them.

The retailers that are quickest to respond to the changing trends is perceived to be the most desirable by consumers (Hines, 2009, pp.143).  This has forced leading high street fashion retailers such as Zara, Top Shop, H&M, Gap and Marks and Spencer to hire famous as well as young designers to make available changing trends quickly and affordably available which has allowed them to progress sales by 15-20% in 2010 (Newman and Patel, 2008). NEXT is currently not in the position to offer fast fashion service as it does not have the required quick response logistics, supply chain, procurement and operations.

Motivation, Personality, and Emotion

Young fashion enthusiasts around the world are greatly influenced by their peer groups (Barnes, 2010, pp.261).  Linked with the consumer behavior theories of behavioral intention, and the social belongingness element for motivation towards purchase behavior pointed out by Abraham Maslow, indicate how importance the reference or peer groups are in consumption of fashion products. Young consumers of fashion retailers are found to seek advice, approval and the acceptance of fashion trends and incline towards purchasing those products are widely popular among the peer groups. For this reason, youngsters, especially females go for shopping in groups and make decision to purchase under a high level of social interactivity (Hines, 2009, pp.201).

5.1  Self-Identity and Consumer Attitude towards Fashion Brands

Self identity is a broad concept that deals with how consumers view and want to see themselves and satisfy that in terms of their buying, for surely fashion mainly focuses on how people want to look to themselves and others. Self identify theory has its own elements, but it greatly determines the purchase decisions made by consumers, especially for brand conscious people. Self- identity is a multi-dimensional construct, related to the attitudes, and perceptions the people have of themselves. The self is a developmental formation, in the psychological make-up of the individual consisting of interrelated attitudes which are acquired in terms of body, objects, family, persons, groups, social values and institutions (Hines, 2009, pp.211). Put forward by Charles Cooley, the theory of “Looking Glass Self” suggests humans develop their personalities from the reflections resulting from responses in the basic socialization processes during personality development. It has three areas that one can look into: One’s imagination of how they appear to others; One’s imagination of how others judge them upon how they look; and One’s development of a self-image through their reflection based upon the judgments an criticisms of others. Self-identity plays a vital role in determining the purchase decisions of fashion brands that are mainly lead by hunger for satisfying the self-image that revolves around symbolic elements of consumption (Hines, 2009, pp.220).

Consumer Decision Process

In the context of fashion buying, personality characteristics and social impacts produce a dominant affect on the purchase behavior and purchase intentions of buyers, and the internet buying behavior is, too, not immune to these effects. In fact, these are perhaps the triggers for the need to consume fashion products.  For internet shopping, the consumers’ presence on the social networking websites drives the consumers towards fashion labels through ‘sensing’ of latest trends based on peer reviews (Li, et al., 1999, pp.200).

Consumers for online shopping for fashion products go through the similar decision process as per for the brick and mortar retail shopping, in terms of phases. However, the emphasis herein, price sensitivity as well as brand loyalty is more in magnitude in terms of affecting the final purchase decision. There is recognition, information search, alternatives and their evaluations, purchase decisions and post-purchase behavior (Kim, et al., 2009, pp.1188). During this process, functional, social and experiential forces impact consumer’s experience of online shopping and satisfaction greatly.

In the information search stage of consumer buying behaviour, internet offers customers a great and fast opportunity gather enough information regarding their need or want (Kim, 2005, pp.218). Sometimes customers do not know what they are looking for and have only an idea regarding their regarding and do not know if a product exists that meets these expectations. Internet allows the customers to search products for their availability and prices with which they can be purchased in the shortest amount of time (Kim & Forsythe, 2009, pp.1115). The functionality of the internet and a massive pool of opportunities, it has to offer to customers and retailers alike, creates a positive impact upon the functional attributes associated with e-consumer behaviour.

Experiential factors refer to those factors that relate to previous and on-going customer-experience in purchasing. In online shopping this plays a vital part, as it influences the final buying decision. Customers when doing online shopping tend to rely greatly on what they hear from others, close relatives, or people in their friends or other social circles. Other customer reviews also help make the decision (Kim & Forsythe, 2009, pp.1115) Since there is physical access to assess the product personally, as can be done retail outlets by touching or lifting the product in hands, e-shopping experience is slightly different for customers (Kim, 2009).

Marketing Mix

Product and Packaging

NEXT’s C4’s website is to use feminine colors of pink, white, black, red, purple and orange in its design. The main tabs are: Home, My Profile, My Friends, My Closet, The Store, My Bank and Contest based on brand management strategy to keep continuous and complete interaction with customers and understand their behaviour to refine segmentation and offer targeted services.

Promotion

Print, Internet, Billboard and Viral Advertisements are to be used together with linkages with social networks, and quarterly sales promotion offers.

Physical Evidence

A month prior to the launch of the website, it is to be tested as an application on Facebook and lead customers towards the website to show how exciting and wonderful it is to actually be able to purchase and wear the outfits rather than just enjoying them virtually.

Place

The website will have this address: www.c4.next.co.uk

Price

Five product lines offer different price ranges: Product Line 1 for £60, Product Line 2 for £45, Product Line 3 for £35, Product Line 4 for £20 and Product Line 5 for £10.

Process

Customers will make online transactions of purchases. The information will be recorded by the sales manager and delivered to the distribution centre. The distributor, the same for NEXT’s Directory, will deliver it to the customer. Finally, the sales manager will transfer the information to the accounts in charge, who will consolidate the sales of the year and the operational profits to send to the NEXT’s Directory’s office for a conjoint financial record and analysis.

Periodicity

NEXT’s C4 will have high sales in holiday and peak shopping seasons.

Conclusion and Market Plan Assessment

With customers becoming more aware of fashion trends through the internet and social networking websites, fast fashion supply chain models allow fashion retailers like Zara to respond effectively to the demands of the customers while maintaining operational efficiency. It is time that NEXT decides to focus more on its online store with consideration of social marketing backed with automation in the value chain to expand its market share across the world. The business idea of combining a social network with an online shop to create an environment of a virtual mall is a viable idea considering the future direction of fashion retail is the internet retailing and marketing through social networks and social media.

The idea for NEXT’s C4: Chit Chat Chic Club has directly emerged from the market forces, trends, developments and the company’s existing strengths.  The online store utilizes to a great extent the opportunities existing in the market, relating to advertising, marketing, and segmenting. However, due to the lack of financial turbulence in the company, NEXT’s C4 has made use of minimum capital investments and operational expenditure to generate a sufficient amount of sales. The store has been planned to be run on a small size, and not at large, considering the deficiency of capital investment.

In the next five years, NEXT’s C4 can expand its distribution if the forecast sales trend and operational profit growth continues on the same rate. But this expansion will require a sufficient amount of capital investment especially in establishing a fast fashion business model which NEXT currently has not adopted but can provide it a tremendous amount of cost savings in future if it is to expand further in its online selling division.

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