Final Thesis - HvA Kennisbank

Transcription

:
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FI C daan
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y Jor
Henn mit
S
Joop
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International
Fashion &
Managemen
t
by Sofia Golf
enbein
Final Thesis
‘International Marketing Strategies by Comparison Germany vs the Netherlands‘
(based on the example of Abercrombie & Fitch Co.)
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Title Page
Name of author:
Title of Report:
Name of course of study:
Type of Report:
AMFI Coaches:
Place:
Date:
Declaration of Authorship:
Sofia Golfenbein
„International Marketing Strategies by comparison
Germany vs The Netherlands“
International Fashion & Management
Final Thesis (Bachelor degree)
Henny Jordaan & Joop Smit
Düsseldorf
30.04.2010
I declare that this thesis and the work presented in it
are my own and has been generated by me as the
result of my own original research.
I confirm that:
1.
This work was done wholly while in candidature for a research degree at this institution;
2.
Where any part of this thesis has previously been submitted for a degree or any other
qualification at this University or any other institution, this has been clearly stated;
3.
Where I have consulted the published work of others, this is always clearly attributed;
4.
Where I have quoted from the work of others, the source is always given. With the exception of
such quotations, this thesis is entirely my own work;
5.
I have acknowledged all main sources of help;
6.
Where the thesis is based on work done by myself jointly with others, I have made clear exactly
what was done by others and what I have contributed myself;
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Preface
The following final thesis originated within the scope of my course of studies International Fashion
& Management at the Amsterdam Fashion Institute in spring 2010.
The paper deals with the topic „International Marketing Strategies by comparison - Germany vs the
Netherlands“. It conducts the differences between the marketing strategies which have to be
considered by fashion retailers when entering a German and/or a Dutch market.
My personal interest in marketing has emerged from marketing courses at my study institution,
steadily growing within the last three years. Supporting my course preference, my father who is
affine with this topic, guided my literature throughout the years and gave me advise on several
thought impetus for my final thesis. The topic arose from study courses I have taken during my
exchange period at the University for Applied Sciences in Mönchengladbach, Germany. The
lectures in the courses Economics, Intercultural Management and Controlling given by Prof. Dr.
Gerrit Heinemann , as well as a course in marketing, which was concentrated on international
entries, barriers and regulations, awakened my interest for international marketing strategies. In the
process of reading the economical textile magazine „Textilwirtschaft“ and books written by authors
such as Philip Kotler and Jack Trout, I started to focus more and more on the nature of international
marketing and therewith approaches which have to be taken when planning to spread ones business
beyond national borders.
However, the thesis does not only analyze the economical and marketing based factors linked to the
topic but moreover, it faces up to the cultural differences between the German and the Dutch nation.
Those are not as obvious for foreigners as they are for nationals living in one of these countries
and / or working with one another. The goal was to depict international specialties, which when
ignored, will result in a strategically planned failure for ones business. The paper entails a guideline
for fashion retailers entering an unknown market, stating its risks and opportunities.
In the process of finding literature I came across various Marketing theories and approaches, which
opened up my horizon for new knowledge and information, steadily used throughout the thesis.
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Table of Contents
Executive Summary
1.0 Introduction
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8
2.0
DECIDING INTERNATIONAL
2.1 The goal of Internationalization
2.2 About Abercrombie & Fitch Co.
2.3 A&F‘s Marketing (Promotion)
2.3.1 A&F‘s Price Marketing Strategy
2.4 Chapter Summary
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3.0
PREPARING INTERNATIONAL
3.1.1 Analysis of the economic aspects in Germany
3.1.2 Analysis of the economic aspects in the Netherlands
3.1.3 Institutional aspects in Germany
3.1.4 Institutional aspects in the Netherlands
3.2 Analysis of the retail sector
3.3 Socio-cultural aspects
3.3.1 Geert Hofstede‘s 5 dimensions
3.3.2 Distance to the domestic market and language barriers
3.4 Location choice and personnel
3.5 Standardization & Differentiation
3.6 Promotion
3.6.1 Promotion in the Netherlands
3.6.2 Promotion in Germany
3.7 Distribution Channels
3.8 Competitors and market share
3.9 Chapter Summary
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4.0
GOING INTERNATIONAL
4.1 Market entry strategy
4.2 Timing strategy
4.3.1 SWOT Germany
4.3.2 SWOT the Netherlands
4.4 Which market has the highest market potential?
4.5 Chapter Summary
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5.0
BEING INTERNATIONAL
5.1 Controlling Performances with the BSC Scorecard
5.2 Expansion
5.3 Chapter Summary
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6.0
Final Conclusion
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4
Appendix
1. Geert Hofstede‘s 5 dimensions country overview
2. GfK Purchasing Power Netherlands 2009
3. Amsterdam‘s surrounding cities including the capital city
4. GfK Purchasing power in Germany 2009
5. Street location world ranking
6. Cushman & Wakefield Survey
7. Population in age-groups in Munich (target group)
8. The development of the Population in the Region 14 around and in Munich
9. Where do Germans inform themselves about clothing before they decide to buy?
(10.a)
(10b)
(11a)
(11b)
UK A&F „home“ website
Assortment overview
US A&F „home“ website
Assortment overview
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Reference List
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Executive Summary
The American brand Abercrombie & Fitch Co. has started to introduce their specialty retail flagship
stores to the European market. The domestic market is at the level of saturation, while the European
market developed a demand for Abercrombie clothing. The company begins to prepare for the
internationalization process and needs to consider several factors before stepping into foreign and
unknown ground. The perfect country and city location needs to be spotted and investigated out of
two contrary competitors, Germany and the Netherlands. Both offer attractive benefits which
Abercrombie wants to exploit.
The proposed plan for A&F provides four main sections: the PREPARING INTERNATIONAL
phase, the DECIDING INTERNATIONAL phase, the GOING INTERNATIONAL phase and the
BEING INTERNATIONAL phase. In the first step the firm must understand why
internationalization might be advantageous for them and which risks might come along with this
action, taking into consideration the state of business and other circumstances influencing the
decision. In the state of marketing, the corporation targets a young group of people aged between 18
and 25 years for their brand Abercrombie & Fitch. The clothes are categorized as young, casual
luxury. The promotion is only present at and inside the stores. The POS builds an important
situation where A&F implements most of its promotion actions, including advertisement, personal
selling etc. In Europe, the enterprise follows an exclusiveness-driven marketing strategy, which
allows for quiet market entries, leaving out outrageous public relations events or big public
announcements, as well as advertisement. Further the company develops a higher price strategy,
underlining the value of the high quality and near luxury clothing for young people who care for
casual looks and visible brand applications.
The second stadium issues the weighting up of potential success factors of Germany and the
Netherlands by analyzing both cultures and economies for the brand Abercrombie & Fitch. The
findings show a stable consumer confidence, a stable retail sector, a higher expenditure for clothing
and a socio-cultural advantage for the potential success of status-brands in Germany. The
Netherlands on the other hand provide a higher per capita income and multilingual abilities, which
simplify the correspondence to the domestic American parent corporation. Geert Hofstede‘s survey
explicitly depicts the masculinity of the German nation and economy as well as their strong
uncertainty avoidance. Whereas the Netherlands are ranked highly feminine. All nations display a
long-term oriented culture, as well as a rather low power distance, towards other countries.
Germany furthermore tenders a larger city-choice pool with several advantageous factors, whereas
the Netherlands scores with lower real estate rents. According to Cushman & Wakefield‘s research
concerning factors which retailers find important for internationalization, Munich and Amsterdam
have diverse benefits, in which Munich manages to achieve a slight lead.
Further investigation shows that less differentiation and more standardization (process and content
standardization) in the analyzed case, simplifies the cooperation (communication) between the
home base and its subsidiaries and creates a unified global image and message. Nevertheless, in
order, to please the European customer and to compete with other strong market leaders such as
Tommy Hilfiger, Replay and Diesel, A&F‘s distribution channels have to be enhanced with the
means of a European customer friendly online store, as well as a European distribution center and
warehousing system.
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Going International gives frame for the actual market entry. A&F invests directly by opening
subsidiaries, carrying the highest possible financial and decisional involvement.
The company is currently on its way of becoming a multinational enterprise with a polycentric
culture, safeguarding international corporate success. The usage of the bridge-head timing strategy
offers the advantage of careful and intelligent incrementalism. Moreover, the SWOT provides the
reader with a quick overview of all collected and analyzed strengths, weaknesses, threats and
opportunities of the German and the Dutch market in order, to keep up with the given information
read before. Finally, the analysis shows that Munich in comparison to Amsterdam carries a higher
calculated market potential, inhabiting a higher population in and around the chosen city. Germany
offers slight economical and cultural advantages towards the Netherlands. Concluding the path of
internationalization, a company must finish its investigation with the chapter -Being Internationalin which controlling performance indicators are stated from four different perspectives.
From the financial point of view, A&F must generate profit by guaranteeing strong cash flow and
ROCE. The customer perspective demands customer satisfaction, acceptance and loyalty, which can
be measured by customer response cards, an online evaluation portal and the observation of product
returns with statements of reasons for return, as well as the counting of online buying frequencies.
From the internal business perspective a fluent working communication pipeline must be created
through process and partly content standardization. The final innovation and learning perspective
provides a view on further expansion plans and the methods with which to achieve those. Using the
acquired knowledge from current international expansion, A&F will benefit and learn from
mistakes and profits from previous decisions.
A company, incorporated in a non-European market must carefully investigate all aspects of
possible chances and threats of a location, when expanding internationally. Knowing and
understanding the differences opens doors for successful business.
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1.0 Introduction
„Marketing takes a day to learn. Unfortunately, it takes a lifetime to master.“ (Kotler 1931)1
Especially when Marketing is applied beyond the known national borders, many companies
struggle implementing planned strategies in reality.
The topic of this final thesis deals with „International Marketing Strategies by comparison Germany vs. the Netherlands“. In order, to illustrate the association of a fictional company, I
decided to chose the world-wide known American specialty-retailer Abercrombie & Fitch
Corporation as an example for foreign large enterprises, internationalizing European and Asian
markets.
Problem definition:
Several corporate internationalizations fail to succeed and maintain their business on the host
market due to insufficient and ineffective market analysis and resulting incorrect marketing
strategies.
Objective:
The following thesis confronts two possible countries with one another to depict several aspects
needed to be considered and analyzed by the management before, while and after internationalizing.
The paper entails a guideline for fashion retailers entering an unknown market, based on a realistic
example of an existing firm, concluding on which basis a company must prepare, decide, act and
stay international.
Surely, plenty of books and thesis's have been written about the guidelines for internationalization
of foreign markets or even the differences among cultures. However, the following text pulls out the
problem, which companies face, when expanding their business abroad, throwing two nations of
dissimilar nature and culture, into one pot, just because they are bordering each other on the map.
Fatal conclusions might be drawn, when companies do not learn to understand the distinctions
between culture‘s values and norms, as well as their institutional and economical nature. This thesis
answers questions such as: Which marketing approaches will succeed in the German market, which
will not be accepted in the Dutch market? Which market has more potential for a fertile ground of
an American status-communicating brand and what are the reasons for these assumptions?
The outline of the thesis is built upon the methodology of a university project report published by
Professor Dieter Ahlert, who wrote the report in cooperation with Kristin Große-Bölting, Maja
Rohlfing and Gerrit Heinemann, who was my professor in the courses Controlling, Economics and
Intercultural Management at the University for Applied Sciences in Mönchengladbach.
The thesis is structured into four central parts called Deciding, Preparing, Going and Being
International, each of which is aligned to the chosen company and the countries Germany and the
Netherlands. The methodology appeared to be a magnificent grid, which simplified the structure
and therewith guides the reader smoothly through the report. In order, to understand and underline
the most important differences between both cultures I made use of Geert Hofstede‘s dimensions.
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For analyzing the markets in their economical and their institutional aspects, the Dutch and the
German Federal Offices of Statistics were a helpful source to find facts and figures. The
information about locations and main shopping streets as well as further internationalization factors
derived from the Cushman & Wakefield Researchers. Furthermore, I applied proven Marketing
tools such as the SWOT analysis to investigate factors of market potential and the Balanced
Scorecard to control performance. The thesis is written solely on the basis, of desk research, due to
necessary economical fringe information in order, to work on the topic using textbooks, reports,
study material, surveys and websites. My major primary and secondary sources were borrowed
library books of Economy and Marketing as well as the subscribed Textilwirtschaft, which I receive
weekly. The magazine enabled the access to the latest information, which was of high importance
for this thesis.
It is always regarded that the sources used are of high currentness and that moreover, their origin is
rooted in reliable and respectable sources. Several economy reports helped me to understand
today‘s economical situation and its development and meaning for retailers. In order, to underline
my arguments, I have used statistics and surveys conducted by large companies, banks or federal
offices.
In the process of the thesis it is essential to decide for a reasonable location. Therefore,
segmentation is a realistic marketing tool to approach large markets such as a whole country. The
analysis shows the slow infringement into the cities Munich in Germany and Amsterdam in the
Netherlands throughout the thesis. Coming towards the end of the thesis, the reader will find a
conclusion, which states which market eventually has the highest market potential for
Abercrombie‘s expansion plan.
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2.0 DECIDING INTERNATIONAL
2.1 The goal of internationalization
On the basis, of globalization and its change in the world economy, internationalization became a
leading marketing strategy for many enterprises, in order, to stay competitive. Especially for several
large-scale enterprises, international expansion developed to a significant strategic and operational
move in corporate planning.2
„Todays‘ top 500 global companies correspond to about 70% of the world trade. Fusions and
acquisitions, take place in order, to make the Big Boys even bigger and wealthier. The competition
has not only become harder, but much more it has become smarter and harder.“ (Traut, 2008) 3
Especially in times of economic stagnation, the search for new markets creates opportunities to
grow and develop.
Internationalization is used for several reasons, such as for being part of the global process and
international development. Additionally, expanding on an international level may be practiced due
to the protection of the domestic market and in order, to stay competitive in the respective market.
Another reason could be, to be able to spread the risk due to high competition in the domestic
market and to generate a higher turnover. Furthermore, a company might want to upgrade its image,
taking an active step into new dimensions and carry the brand into foreign countries: developing
instead of stagnating. Moreover, when the domestic market is saturated, a company must think
about the option of emerging new markets. Those markets might have already developed a demand
for the products due to a strong brand image beyond borders. Nevertheless, it is utterly dangerous to
internationalize due to the only reason of having reached the maximum development in the
domestic market. By that time, the investments into foreign markets might not be enough to lift the
company up again. Usually, several of the above mentioned reasons are decisive for the final
decision to internationalize (Ahlert 2006, p.19-24)4 .
Cushman and Wakefield have conducted a survey, which shows that Internationalization is
depended on various factors. The most important aspect for locating a business is the smooth and
easy access to markets and their customers, followed by the availability of professional and
qualified personnel. Moreover, a logistical and communicational pipeline must be guaranteed, as
well as a moderate cost of staff and the value for money of office place (sales area) (Rossall 2009,
p.8)5.
However, currently the retail industry invests primary into internal optimization before thinking
about growth strategies. Protection of the locations and liquidities have a crucial priority. The
financial crisis has hit various industries and does not show an end to the current economical
situation. Nevertheless, there are some few „retailers which exploit the weakness of the market and
the availability of real estate and rent-locations for a strained expansion (...)“ (JM 2009, p.51)6.
So does Abercrombie & Fitch, whose annual reports and UK-website state the main focus on
international expansion in Europe and Asia for the next few years, before the redesigning
investments of the home-based flagship stores. But, where is the expansion path leading the
company? Which market potential does Germany imply and in how far does the Netherlands
qualify itself as a great potential market for the brand Abercrombie & Fitch?
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Will Abercrombie & Fitch Co. gain success and recognition in Europe or will they fail to satisfy
their customers?
2.2 Abercrombie & Fitch Co.
Deciding to take one‘s business abroad, prior implicates a number of investigations.
A company must find answers to questions such as „Is it suggestive to expand into Europe?“, „Is
there a demand for our products?“, „How does our competitive position look like?“, „Is our
collection appropriate for the chosen market?“ and „What are our striking and consumer convincing
competitive advantages?“Only after having answered those and several other questions, a company
should start preparing its internationalization path. A smooth flow over the complete textile pipeline
must be warranted.
At fist the company Abercrombie & Fitch Co. (A&F) must be investigated. The thesis is based on
the company as an example for any company, incorporated outside Germany or the Netherlands.
Abercrombie & Fitch is an American fashion retailer (specialty retailer) for upscale casual
sportswear apparel and accessories. The product portfolio offers knits, wovens, tees, denims and
woven pants, shorts, sweaters, miniskirts, outerwear, as well as personal care products and
accessories for women, men under the Abercrombie & Fitch brand name. Kids are served under
„abercrombie“, teenage girls and boys under „Hollister“, while Gilly Hicks sells underwear,
sleepwear etc. for women. A&F is rooted in a store for camping and hunt accessories and clothing,
founded by David Abercrombie in 1892. 12 years later Ezra Fitch, who was a lawyer, became his
partner. Business went down in the 60‘s which forced the partners to sell the company to „The
Limited“, with Mike Jeffries being the current CEO.
The Headquarter is situated in New Albany, USA from where all major operations are lead (A&F
2009)7. Further organizations are managed by the European A&F offices in Italy, UK and
Switzerland and the logistics are handled by the Dutch TNT (Nowicki 2009, p.27)8.
By now A&F operates over 1130 stores in the US, Canada, Japan, Italy, UK (7 stores outside the US
and Canadian area) and distributes its products on their websites, which are mostly unprofitable for
European customers due to a large distance to the distribution center in the United States (further
analysis of A&F‘s online sales in Chapter 3.7 „Distribution Channels“).
„Abercrombie & Fitch“ has a clear market segmentation. It targets the upper-middle class youth
between 18 to 25 years. The style is „youthful and All-American“. The brand is categorized as
being casual luxury, sexy, slightly provocative (very short skirts and shorts, very slim designs and
cuts), timeless and cool. The company employs over 10,000 people.
A&F‘s type of ownership is a corporation with an unlimited number of shareholders. Its liability is
limited, which means that no personal assets are at risk. The advantages of a corporation are the
availability of specialized management skills, a wide financial capacity, economies of large scale
operations and finally the limited liability. On the other hand it is difficult and expensive to form
and dissolve this form of ownership. Further disadvantages are several legal restrictions and an
enormous tax disadvantage; Corporations are obliged to pay corporate income taxes (Müller 2009,
p.43)9.
A&F has emerged to be a good example for depicting what has to be considered when expanding
internationally. Reasons for choosing this company were the following:
1. A&F neither exist in Germany, nor do they sell their clothes in the Netherlands.
2. A&F is an American company, with a far-distanced domestic market, which makes the
internationalization more difficult.
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3. The German market has a strong demand for A&F clothing (see press releases FashionUnited.de).
4. The enterprise has a strong brand recognition and image. Its logo, a moose, is known worldwide.
5. A&F started their European expansion process in 2007, opening a flagship store in London,
Savile Row, which is close to Regent Street. An A-location was sealed and the expansion
continued.
6. A&F opened a store in Milan and in Tokyo, where the company snatched again a top-location in
the Ghinza residential area.
7. A&F is realistically planning an expansion into Germany in the next one to three years.
8. Soon A&F will open stores in Copenhagen, Zurich, Paris (Avenue des Champs-Elysées) and
another store in the UK.
9. Finally, A&F needs to expand now at the latest, due to a saturated domestic market. After
refusing international expansion for a long time, due to the maintenance of the special image and
the privilege reputation outside the US, A&F is a „Hard-to-get-brand“ for foreigners, unless
traveling to the US (A&F 2009)10.
In order, to become successful expanding abroad, the company needs to consider several factors
beforehand. The dependent aspects are listed in the annual report saying that the company first must
key out suitable markets and find store locations, which projects the company‘s image the best.
Once an appropriate location is found, it is of high importance to negotiate acceptable rent prices
and terms. Personnel has to be hired and trained in order, to be able to represent A&F in the best
possible way.
Further, it is vital to gain acceptance among their foreign customers, for which it is essential to
analyze the market, to identify its strengths, weaknesses and to find its opportunities and its threats.
Moreover, A&F needs to find new vendors, who are able to supply larger quantities of goods or
negotiate new terms with existing vendors. As a consequence thereof, the stock needs to be
managed most efficient to guarantee enough merchandise for each store. Additionally, the
infrastructure needs specific adjustment to match up to the developments.
Financially, A&F „must generate sufficient operating cash flows or secure adequate capital on
commercially reasonable terms to fund their expansion plan.“ Surely, taking into account the
foreign currency exchange risks, which might appear (A&F 2009) 11.
2.3 Abercrombie & Fitchs‘ Marketing (Promotion):
In order, to be able to imagine the atmosphere in and around an A&F store, the following
impressions might give a certain perception on the brand and what it stands for:
(picture taken in
London)
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Hundreds of people stand and wait in the never-ending queue leading to a building, which looks
like a museum at first sight. Once coming closer to the doors, one will spot two half-naked, athletic
young men guiding people in sequences inside the building.
Large billboards show the models who welcomed us at the entrance, almost vibrating from the loud
beats, booming from the inside of the store of Abercrombie & Fitch in London.
The semidarkness creates a feeling of curiosity, while the music puts us in a mood of coolness, fun
and unconcern. Additionally we notice the heavy smell of the new A&F perfume. Friendly young
staff asks how we are doing and if she can do anything for us. She looks like a model, wearing
those jeans, which I definitely need too! Maybe, it‘ll make me look as gorgeous as the A&F-girl.
The mass of clothing is lit directly from somewhere out of the darkness and makes the colors look
more intensive than they really are. The expressively exaggerated light in art is called ChiaroscuroLight Arrangement by which an exhilaration emerges, which can be compared to culinary
intoxication through food and drinks: „ Organized abundance in an exaggerated display.“ (Mikunda
2009, p.64-65)12 . All in all, the store reminds of a fraternity house from American movies. Wooden
interior, college boys and girls in a cheerful party atmosphere only without alcohol.
Source: slowretail blog13
A&F applies the use of sexuality and beauty as a central marketing strategy. All billboard shoots
and ads show half-naked young men or women, posing sexually, mostly in an outdoor setting. The
pictures are almost beyond exception shot in black and white by the photographer Bruce Weber,
who shot other sexual greyscale pictures for magazines and other brands. Successfully, A&F creates
the psychological link between their rather simple, but yet unique clothing and eroticism,
metrosexuality, homoeroticism, beauty and physical perfection.
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The moose logo, embellishing each piece of clothing, is the distinctive brand recognition.
Primarily Abercrombie advertises effectively its brand at the point of sale, rather than outside the
doors of their flagships. It puts a strong emphasis on personal selling and sales promotion, such as
model contests, photo shoots and premium offers. The ad penetration in magazines is low and the
appearance in TV commercials is not existent at all. There is almost no involvement in sponsoring
or any other kind of marketing penetration. Abercrombie entered the international markets quiet, but
yet deliberate. No PR-event, no advertisement, no publicity was presented at all. The German
magazine „Stern“ calls the company‘s entrance a „(...) sneak-in through the backdoor (...)“ (Pientka
2009)14. The protection of A-locations is one of A&F‘s major strategic marketing operations.
The focus is put on in-store presentation of a philosophy of life, with which consumers identify
themselves and appeal to this vintage, loose but preppy clothing / lifestyle. The company further
publishes a catalogue twice a year, which is available against payment of a small fee, presenting the
latest styles and loads of skin.
The online store „www.abercrombie.com“ is a further distribution channel which is constructed
neatly and organized. The website has an easy handling and order tracking system, which is clear
and structured. The presentation of the clothing is divided into garment-categories, while each
category is never overloaded by too many items. Here, one can not only order clothes and
accessories, but moreover listen to the original store music, submit pictures for a model casting and
look through the pictures of the current „A&F-faces“ (Abercrombie&Fitch Co. 2010)15 .
Nevertheless, A&F is a brick and mortar business, which has commercial addresses on which is
being concentrated the most.
Source: cache daylife 16
14
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2.3.1 A&F‘s Price Marketing:
In the United States, Abercrombie operated a moderate middle-price strategy which was accepted
and payed by the customers in order, to feel special. According to the selected target group and its
positioning as a near-luxury, preppy and status oriented image, A&F follows a pricing strategy
which confirms this image.
However, after the opening of the flagship in Manhattan and the expansion to Europe, A&F
increased it‘s prices in their domestic market during the world financial crisis and changed its price
policy in the European market. While a simple t-shirt costs $24 in the US (which makes !17,58), it
is now priced £30,97, which equals respectively ! 34,34 17 . This equals a price increase of nearly
100%. This fact tempered the delight in the London flagship when potential customers were
deterred by the untypical high prices. The domestic customers felt betrayed and Abercrombie‘s
customer frequency and profits started to decrease. Abercrombie lost $47,2 million during February
and November 2009 (19%) and dropped into red figures (Nowicki 2009, p. 28)18.
Consequently, the company lowered its prices and offered discounts in their domestic market, after
long-lasting refusal. That way, Abercrombie was able to maintain its sales in the United States and
in Canada, while concentrating on the international expansion.
Considering that Abercrombie targets young people, who are mostly financed by their parents or
work for a small salary, the price margin is very sensitive. If the price becomes lower than the
perceived value, the brand image might suffer and loose its privileged appeal, while on the other
hand increasing the price might reflect a brands‘ arrogance and customers might turn their back on
Abercrombie. This kind of segmenting pricing was implemented without adding value or any
rational justification, which disappointed many Abercrombie fans who were looking forward to the
opening in London. Surely, it was expected that prices might end up slightly higher in the UK, due
to additional shipping and insurance costs, import tariffs and taxes, costs associated with exchangerate fluctuations and higher channel and distribution costs. However, a price increase of nearly
100% shocked loyal consumers and potential customers.
2.4 Chapter Summary
The first chapter of the thesis depicts the decision process of taking ones business beyond national
borders. It explains that several corporate strategic reasons are dependent on the decision of going
international. Be it, the saturated domestic market, being part of the global development or any
other drivers, which have to be analyzed in detail before taking action.
The American specialty retailer Abercrombie & Fitch proved itself as a good choice for the issue of
a company example, due to the fact, that the brand is indeed known in Europe but not yet
represented in the countries which are analyzed in this thesis. Furthermore, A&F is actually
planning to expand into Germany, which is a rumor yet. Until now, only the young subsidiary
„Hollister“ has found its way to Frankfurt in Germany. The company has clear ideas for their
internationalization phase in the next few years stating all steps the company will go through before
opening doors of new flagship stores.
The analysis of A&F‘s marketing strategies indicates that the main focus is set upon finding Alocations for its flagships and the offering of absolute experience shopping. Model-like students,
representing Abercrombie‘s image and style are hired in order, to give the store a flair of a
fraternity. Long-time distance keeping from the European market, resulted in a demand for
Abercrombie apparel and hence, European Abercrombie fans finally get what they wanted but
where not able to get.
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The emphasis of advertisement concentrates on the POS in the stores and on A&Fs‘ websites. A&F
does not promote its brand in an excessive manner with PR press meetings and big media releases.
It rather „sneeks“ into the European market.
The European pricing strategy differs from the American. While European customers pay about
100% more for an A&F item, Americans can purchase their clothing for moderate prices.
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3.0 PREPARING INTERNATIONAL
3.1.1 Analysis of the economical aspects in Germany
Germany is the most dense populated country in the European Union. With its 82,000,200
inhabitants and a GDP of ! 2,5 trillion, Germany is the largest market in Europe and the forth
largest economy in the world. The GDP is the value of all goods and services produced in one
country, in one period, involving money and contains the following expenditures: consumption
expenditures, investment expenditures, government purchases and net exports (Heinemann 2007, p.
41)19. Nonetheless, the financial crisis hit the social market economy from several angles, but softer
than expected;
The economic growth rate decreased -5% (Eurostat 2010)20 to a per capita income of ! 29.400 in
2009. By virtue of decreasing income and a drop in population (-216.000 people) Germany is
missing ! 7,5 billion or 0,5% purchasing power (Maurer 2009) 21.
The unemployment rate in 2009 increased by 0,4% from 7,1% to 7,5% compared to 2010
(Bildungsspiegel 2010)22. Nevertheless, the unemployment rate did not explode in 2009 as
expected, due to short-time work, mini-jobs and the depletion of overtime. According to GfK‘s
consumer power survey, Germany‘s disposable income will drop by ! 42 per person due to
decreasing incomes and a downturn of inhabitants (Eisenblätter 2010)23.
The inflation rate increased by 0,4% from 2008 to 2009, which is the lowest yearly-based price
increase since the unification of the Federal Republic of Germany.
The consumer confidence* in Germany has adopted a stagnation-position. The future uncertainty
about their income and the budgetary situation of Greece spreads fear about the effects on German‘s
economical development. Those facts are associated with the slight drop in the willingness to buy,
although still moderate with 24.2 points compared to 27.9 points in 2009, due to lower prices
(deflation) and a long sales period. The consumers feel, that the economy will only recover slowly
from the crisis and tend to purchase low risk and investment products (Bürkl 2010)24.
A competitive disadvantage is the higher wages level in Germany compared with the Netherlands.
While Dutch employees are paid about ! 29.500 to ! 32.500 in average per year, Germans receive a
salary of ! 32.500 to ! 40.300 per year.
3.1.2 Analysis of the economical aspects in the Netherlands
The demographically and economically closely-linked Netherlands is home for 16,564,029 people.
Due to break aways in the export and import sector its‘ GDP decreased by tremendous 4,5% to
! 574,826,000,000 which is the deepest crash in GDP since World War II. However, compared to
Germany, the comparably wealthy Dutch nation has a stronger buying power with a per capita
income of ! 34,800. Due to early action-taking such as nationalization and relief funds, it was
possible to stop the GDP decrease at -4,5%. On the other hand, the liberal belief of trading nations
such as the Netherlands, does not back on institutional and governmental economic stimulus plans,
as much as other European countries do. They rather rely on their ability to innovate and change in
a modern way, than pursuing saving plans (Germany Trade & Invest 2009)25.
The Dutch inflation rate stands below the Eurozone rate of 2% with low 0,8%, due to falling prices
in electricity, gas and food (Statistics Netherlands 2010)26.
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The Dutch consumer confidence dropped more than their partner‘s confidence indicator.
Due to a pessimistic view on the economic climate in the next 12 months (January 14 --> February
6), the prospective income dropping by 5 points, and finally the associated decrease in the
willingness to buy (from -4 to -7) result in the overall negative consumer confidence for 2010.
The consumer confidence can be calculated by finding out the economical climate, in which people
are asked how they evaluate the overall economical situation of the past 12 months and the
economical situation in the next 12 months to come. The additional factor needed is the willingness
to buy, in which consumers are asked how they evaluate their financial situation of the past 12
months and their financial situation in the next 12 months to come.(Please see image below).
The first rise in the unemployment rate since 2005 up to 4,0% (Bildungsspiegel 2010)27 has spread
unusual fear among the Dutch nation. 11% of people with a non-western origin (Turks, Moroccans,
Surinamese and Antilleans/ Arubans) are unemployed whereas their counterparts cast only 4% of
the unemployment statistic. However, compared to other countries in the Eurozone, the Netherlands
as well as Austria, both state the lowest unemployment rate.
The CBS announced 54% more bankruptcies in 2009 than in the year before with 10,500 businesses
mainly closing doors in Flevoland, where insolvencies were 11 per 1,000 (Statistics Netherlands
2010)28.
* The consumer confidence indicator is divided as follows:
19
3.1.3 Institutional Aspects in Germany:
The social market economy is highly politically stable due to the form of government
(Parliamentary Democracy) and the legislative body (multiparty, coalition-based system). The legal
system is transparent to inhabitants and those who want to make business with Germany. The
country is open and grateful for foreign investments. Open borders allow unproblematic capital
transactions or currency transfers, real estate purchase, repatriation of profits, or access to foreign
exchange. Furthermore, nationals do not have any advantages over foreign persons or enterprises
regarding investments or establishments of new companies (Germany Trade & Invest 2009)29 . The
corporate tax burden has been lowered in order, to stimulate the economy during the recession.
Nevertheless, corporate taxes (29,83%) exceed the burden of the neighboring Netherlands by 4,33%
(Germany Trade & Invest 2009) 30.
3.1.4 Institutional Aspects in the Netherlands:
The Netherlands are known for its strong economy, which has high potential of recovery in times of
crisis and disruptions. The country is depended on foreign trade and finds its most important market
in Germany. The extraordinary decline in exports by nearly 25% in 2009 hit the Dutch economy
very hard (CIA 2010)31. In order, to stimulate the economy, the government offered corporate tax
breaks (25.5%) for the retainment of labor and the expansion of credit facilities, which is an
advantage towards Germany, where corporate taxes are still significantly higher. Compared to the
European average of 29,5%, the Netherlands hold a significant competitive advantage.
The attitude towards foreign investments is very positive and the Netherlands themselves are one of
the four largest investors in the US. The country has a strong pro-business government and the
economy is highly internationally oriented due to its size and the dependency of exports and
imports. The country is one of the most popular locations for direct investments, which is also
maybe down to the fact that real estate annual costs are lower than in many other European
countries such as Germany (NFIA) 32.
3.2 Analysis of the Retail Sector:
Despite of the uncertainty, Germany is the largest textile market in Europe with !39 billion turnover
volume. Only ! 6,2 billion were generated with young fashion (Pientka 2009)33 . In average
Germans spent ! 888 (Destatis 2007)34 for clothing in 2009, while the Dutch only spent !732.
(HBD 2008)35
As a result of the moderate increase of the unemployment rate, the retail industry experienced only
a slight downturn (-1,8%) in 2009. Distributors complained about a low customer frequency and a
deterioration of the customer climate. Further merchants evaluated the economy, the political
conditions and the competitiveness as worse than expected (AF 2009, p. 38) 36.
Several already beleaguered companies had to file for bankruptcy whereby the fashion retail was
not spared from the insolvency epidemic. Enterprises such as Arcandor (Quelle, Kartstadt,
Primondo, Hertie etc), Adessa, Pohland, Liberty, Woolworth, Avanti (C&A‘s discounter), Schiesser,
Oilily, Rosner, Trevira, Bäumler und Peine and many more closed doors (Müller J. 2009, p.22)37.
Even luxury retailers, which were comparably successful, could not ignore the crisis:
While top-quality brands such as Louis Vuitton and Hermes flourished in the last year, the
insolvency wave ran over Christian Lacroix and Yohji Yamamoto. Chanel had to fire 200 workers,
20
Versace has cut 350 jobs and closed down its stores in Japan, while Ralph Lauren and Prada
announced short-time work. La Perla and Dolce & Gabbana cut down prices.
Experts say, that the crisis took revenge on those, who did not back on price-for-quality and
timeless pieces but rather on aggressive advertisement and a brought distribution. That way, the loss
of exclusiveness was predictable and high price-marketing was not good enough (Müller J. 2009, p.
23)38. The lack in liquidity opens many new doors to financial investors. Many companies are now
on the market and a vast majority of acquisitions take place. The interest rates are low, but the
allocation of financial means such as bank loans are too. Strategic investors are now getting their
chance to succeed: Gabor nails down the rights on Snipe (sports shoe brand), Maxeda sold Claudia
Sträter to 2Deal Ventures, Stefanel‘s Hallhuber-stores will be taken over by Change Capital Partners
etc. (Müller J. 2009, p.24)39. Due to the lifecycle curve and the current market situation, businesses
have to be alert of coming dangers and be preventive rather than reactive by innovation and new
orientation.
So does Philip Plein, who expands his product portfolio by shoes and bags, H&M by home textiles,
Massimo Dutti by Baby wear, Cos by Kids wear, Mango by a low-price collection, S.Oliver by big
sizes and Tom Tailor by a shoe collection (Müller J. 2009, p.29)40. Obviously, nowadays enterprises
back on product development and diversification.
3.3 Socio-cultural aspects:
Believing that two countries that are bordering each other demographically, could be therefore
similar in their economic, cultural and political nature, can turn out to be a huge mistake. Germany
and Netherlands are an example for demographically close countries, which are expected to provide
multiple similarities on the first sight, but show great differences taking a closer look.
Although, both countries are closely bonded by distinctive trade, one should not measure those by
the same yardstick. Especially when it comes to interpersonal issues, business negotiations and
moral beliefs, the Dutch and the Germans have to be distinguished clearly (Haus der Niederlande)
41 . Born in Russia, living in Germany for almost 20 years now, spending 2,5 years in the
Netherlands and 1 year in the United States of America, I can say to have collected impressions of
the Germans, the Americans and the Dutch people. Surely, those are only subjective, which is why
my impressions had to be underlined and proved by other experiences and theories such as the 5
dimensions by Geert Hofstede which will be depicted later in the thesis.
The Dutch are a pluralistic nation, respecting and accepting various nationalities, religions,
genders, beliefs and opinions. Their egalitarian nature makes them to highly tolerant people towards
individual differences. Since their privacy is of high importance, the Dutch like to keep their
personal life separate from business, vice versa they would not intervene into the privacy of
outsiders. They are said to be reserved personalities and formal towards outsiders or business
counterparts. The Dutch put much emphasis on the first impression, therefore a neat appearance is
very important, yet they do not appreciate displays of wealth and swagger behavior. Big labels and
obvious splendor will not impress the Dutch person, but rather be self-defeating! One should also
prevent boasting about own achievements and material possessions. The other way around, they
dislike to strike or to be the center of attention.
Especially, making business with the Dutch, requires a certain know-how:
The very most important fact to consider is that everyone is valued and shown respect. This even
shows in hierarchical organizations, where every single person has a right to their opinion and to
have it heard. Decisions are made upon consensus and employees are expected to give input and
think for themselves, even when the boss is the final decision maker. Long small-talks are unusual,
21
since the Dutch prefer to get down to business quickly and are extremely direct in their
communication, which sometimes does have a negative effect on counterparts from other countries.
(Kwintessential)42.
The Germans on the other hand are very much objective driven. Not only do they set great
value upon material possessions, but strive for achievements and growth (inner development or
business related growth). The same can be observed in the style of leadership, where performance,
figures and money are put first. They are very much brand-oriented people (74%) and put a lot of
emphasis on quality (59%) (Krafft, Hesse, Kappik, Peters & Rinas 2005, p.254)43.
Germans appreciate rules and structures, in business and in their private life. Companies often have
a deep hierarchy with clear subdivisions of authorities and competencies. Moreover, the German
nation is one of the leading nationalities when it comes to uncertainty avoidance; Minimizing risk,
having a clear control of things, eliminating errors before they occur.
One of the most significant characteristics that Germans possess is their sense for time. Punctuality
is assigned high value and being reliable is the most important soft-skill one should have in order, to
be chosen for a job (or to keep the job).
For many Germans obligations go before pleasure and well-being, which becomes clear when they
make and take appointments even during their leisure time.They put much emphasis on autonomy
and dislike dependency. Justice is an important social component of their lives.
The Germans are also a rather reserved nationality, who like to separate private from business life,
only they are not that consequent with this preference as the Dutch are.
At work, they are very rational, while in private Germans can be very emotional (Sarnow &
Indlekofer 2005)44.
Possible Reasons:
Where are those allegations rooted and how do we justify those statements?
It can only be assumed that the following facts might have influenced and therewith shaped the
nations characteristics to what they are now.
The Netherlands used to be a confederation of several independent provinces. So did the Dutch
never develop a strong authority-thinking, neither have they ever experienced a high power distance
towards their government and vice versa. Salesmen and an oligarchy of upper class manhood
governed the provinces while Germany was ruled by an absolutistic aristocracy. Thus it appears that
the Dutch are now an open, egalitarian culture, whereas the Germans are striving for success and
achievements. Furthermore, the Netherlands have a long history of international trade. Maritime
trading was the leading specialization, while the Germans were geared to handcraft and specialized
on their domestic market.
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3.3.1 Geert Hofstede‘s 5 dimensions (Heinemann 2007, p.81-108)45:
Geert Hofstede, who is a professor for organization anthropology and international management,
investigated cultural differences for several years. He developed a survey, which was filled out by
25.000 people from 50 countries. After analyzing the results, he created five central cultural
dimensions (the 5th dimension was added years later) and gave them figures which describe the
extend to which a culture does or does not carry a specific characteristic:
•
•
•
•
•
Power Distance (PDI)
Uncertainty Avoidance (UAI)
Individualism (IND)
Masculinity (MAS)
Long-term Orientation (LTO)
The theory has proven itself correct in many cases.
Nonetheless, it has to be considered that this analysis is an average statement about a whole culture
of a specific country and does not consider individuals. Additionally, the theory is based on surveys,
which could be inconclusive and therefore not 100% representative.
(the full table is to be found in App 1)
Average results of
all countries
55
USA
Germany
The Netherlands
40
35
38
Uncertainty
Avoidance (UAI)
64
46
65
53
Individualism
(IND)
43
91
67
80
Masculinity
(MAS)
Long-term
Orientation (LTO)
50
62
66
14
45
29
31
44
Power Distance
(PDI)
Interpretation:
The above presented table is an extraction of a large country overview.
In order, to analyze a country‘s culture, the figures are a helpful guidance into specific directions of
attitudes. Since the thesis deals with the differences in marketing strategies for different countries, it
is utterly interesting to analyze the corporate culture and the associated behavior and processes in
23
each country. This study is important in order, to understand cultures and prevent mistakes which
might result in withdrawal from the affected foreign market.
Power Distance: The power distance index measures the extent to which less powerful members
accept that power is distributed unequally in institutions and organizations. It is Germany‘s lowest
indicator with a score of 35, located beneath the world average of 55 (compared to the top scored
Mexico with 81 points and the lowest scored country Austria with 11 points).
The United States, Germany and the Netherlands altogether have a low PDI, which means that
power is distributed more equally than in countries like Malaysia, Guatemala or Mexico (see
appendix for whole table). The gap between rich and poor is not too large, as compared to Arab or
some Asian countries. Germany and the Netherlands strive for justice and equality (Workman 2008)
46. Americans are known for their will to fight for their rights seen in their history and several law
charges.
Uncertainty Avoidance: Germany has the highest UAI, which is an indicator for deep hierarchies
in businesses, technocrat employers and strong status oriented mentalities. A culture which avoids
uncertainties prefers to have regulations and written instructions because it fears the loss of control.
It is very exacting about punctuality and the allocation of tasks is bureaucratic and formal.
According to Hofstede‘s evaluation the Americans and the Dutch have a lower UAI, depicting
rather flat hierarchies, pragmatic and entrepreneurial leadership qualities. The allocation of tasks is
mutual and flexible (horizontal) and the ideal employee assertive and motivated. The employer
always integrates and takes into account what employees have to say.
Individuality: The indicator outline, that the United States and the Netherlands both strive for
Individuality (91 & 80) which means that those cultures seek for independency and self-orientation.
They signify for uniform rules and strive for more tolerance towards other opinions. Moreover, in
business individual cultures behave more entrepreneurial and autonomous.
Germany is still located above the average of 43 with 67 points and is termed individual, yet not to
the above mentioned extend.
Masculinity vs Femininity: Germany and the US are strikingly more masculine than the Dutch
culture. Here it is to say, that the level of masculinity is analyzed. Hofstede associates masculinity
with features such as being firm, materialistic and success driven whereas femininity is related to
attributes such as modesty, sensibility, placing value on living quality etc. A society is feminine,
when men and women both have feminine emotional characteristics. Both genders overlap when it
comes to jobs or duties. A high MAS therewith indicates independent thinking and deciding, the
will to achieve „more“, the ambition for benefits, acknowledgement, success and progress.
Masculine countries further are cause, money and growth oriented. The career oriented nature of
those cultures leads to blurred borders between job and private life. Often careers act on private life
and cause more pressure onto individuals.
Conspicuously often, a division of gender roles associates this characteristic, which is mostly
visible on the labor market. There are still typical male and female careers, while less women staff
leading positions and earn less money for the same profession.
The Netherlands are termed as a feminine nation. Here cooperation is in the fore instead of
individual progress and achievement. A pleasant working atmosphere and group-decisions
(consensus finding) are of high importance. A feminine culture seeks for independency and self
fulfillment, rather than for material possession. Those nations are relationship oriented and harmony
driven. They appreciate a good life quality, in which career and private life are strictly divided.
24
Moreover, genders are treated equally in the Netherlands and one finds several women in top
positions such as Charlene de Carvsalho, who is the Heineken‘s biggest stakeholder, Rita Verdonk,
a politician and Neelie Kroes, who is the European commissioner for Competition.
Furthermore, it is to say, that the Dutch Elementary school teachers are mostly women. The
feminine influence is dominant in the beginning of a child‘s life. During this period, ones
personality is formed and developed.
Long-term orientation: the Chinese value-study is an addition to Hofstede‘s four cultural
dimensions. The 5th dimension is based on the results of the Rockeach Value Survey (RVS)
implemented by Michael Bond in cooperation with Chinese social scientists.
According to the last dimension all three cultures are positioned within one scope, whereas the
Netherlands are scored higher than Germany and the United States. A long-term oriented culture is
forward driven and adapts traditions to modern conditions. It economizes with natural resources and
financial means in respect, of future supplies. Discipline and patience are typical attributes of longterm oriented nations, as well as being able to accept a subordinate role in cases where its needed to
be successful in organization and management.
3.3.2 Distance to Domestic Market and Language Barriers
The large demographical distance to the domestic market requires solid communicational processes
and frameworks. Each individual connected to the company, needs to overcome lingual and cultural
differences. The American parent corporation needs to accept and understand advices made by its
subsidiaries which are situated abroad, while the subsidiaries on the other hand are obliged to
follow regulations and requirements made by their domestically situated parent corporation. Both
should benefit from the mutual know-how. Standardization is a central factor which helps to
straighten the communicational pipeline, as well as multilingual executives and employees.
The Netherlands has the advantage of being highly multilingual. 87% of the Dutch population speak
English, 70% speak German and 29% speak French (NFIA) 47. This ability for foreign language has
several sources. Firstly, the English language is already taught in Elementary school which is a
strong advantage to other nations that merely begin teaching English in Secondary school only.
Secondly, Dutch television consists of 80% American content. TV-shows, series, movies,
documentaries are almost all shown in English with a Dutch subtitle. Media contents for kids on the
other hand are being synchronized and translated into the Dutch language. Additionally, the Dutch
were always more interested in activities and news from beyond their borders than other nations
who rather concentrated on their domestic inner activities. Due to the small size of the country, the
Dutch people were looking for opportunities to travel and see other places in the world much more
than Germans, who‘s most favorite holiday spot is and will remain Germany. Moreover, the tight
economical network between Germany and the Netherlands requires a basis on which both
countries are able to communicate. Due to the importance of the German market as one of the
strongest customers, the Dutch were motivated to learn the language in order, to minimize the
discrepancies and reduce intercultural barriers. Finally, the Netherlands are home for plenty of
international investing companies and corporations, which stimulates the necessity of learning the
English language.
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3.4 Location Choice & Personnel:
After the opening of the flagship store in Manhattan, 5th Avenue, A&F wants to continue its „highend location-strategy“ in Europe as well (see flagship in London or Milan).
Therefore only A-locations come into question. Since, the store location is one of the central
marketing strategies, this path should be continued consistently.
Due to the highest purchasing power and the highest tourism density, Amsterdam is the only
possible city choice for a market entry in the Netherlands (see App 2 for image) (GfK 2009)48.
With its 756.347 inhabitants, Amsterdam belongs to the busiest cities in the Netherlands (Gemeente
Amsterdam 2010)49 . But, not only Amsterdam‘s population is keen in using the shopping
opportunities in this city, but much more inhabitants from surrounding smaller cities travel to
Amsterdam for shopping. Considering the population in the area between Haarlem and Hilversum
(see App 3), which includes the cities Haarlem, Bloemendaal, Landsmeer, Amstelveen, Diemen,
Muiden, Naarden, Bussum, Huizen, Blaricum, Laren, Weesp, Hilversum and Amsterdam, the
population sums up to 1,260,282 people (HBD 2009)50.
The upper-class shopping street P.C. Hooftstraat meets A&F‘s positioning preference upgrading its
image by the surrounding of stores such as Hermes, Louis Vuitton, Chanel and many more.
Unfortunately, space is limited and highly coveted. It is therefore doubtful whether A&F will find a
proper location close to or in the P.C. Hooftstraat in the near future. On the other hand, A&F could
decide for a location which is slightly further than the P.C. Hooftstraat but still located in the same
area around the luxury mile, such as the Eerste Constantijn Huygensstraat or the van Baerlestraat,
which is situated at the end of the upper-class shopping street. The Hobbemastraat would be suited
for a flagship store in Amsterdam as well, because it paths the way towards the P.C. Hooftstraat
when coming from the Leidseplein, which is the cities‘ tourist hub. Another argument which speaks
for Amsterdam is the lower retail location price. The Kalverstraat for instance (Amsterdam‘s main
shopping street) costs ! 192 per square meter. The Dutch retail property rents have dropped by
1,6% during the recession.(Cushman & Wakefield 2009, p. 13)51 . Concluding, space is highly
limited and hard to find.
26
When analyzing Germany‘s location potential, one will take notice of the purchasing power in and
around the city of Munich in Bavaria (please see App 4) (GfK 2010)52. Not only, Munich enjoys a
higher living standard compared to the rest of Germany, but its‘ demographical location appears to
be very convenient. Tourists from Austria, Switzerland and Italy love Munich for its architecture,
Biergärten (beergarden), Oktoberfest (traditional fair), museums, landscape and shopping offers.
The Kaufingerstrasse and the Maximilianstrasse (see picture below) are upper-class miles,
comparable with the Königsallee in Düsseldorf, selling luxury goods such as Dior, Gucci, Vertumobile phones etc. The price per square meter amounts !300 in the Kaufingerstrasse and ! 250 in
the Maximilianstrasse (Fashion United 2009)53. The Kaufingerstrasse is furthermore ranked at
number 9 (see App 5) of the most expensive retail locations around the world, while Amsterdam‘s
Kalverstraat is only ranked at 17th place (Cushman & Wakefield 2009, p.8)54 .
The retail property has remained rather stable, due to recession aftermaths mainly in the department
store sector. The dense pedestrian traffic makes this location extremely attractive for brands which
can afford the abnormal rents. Considering the population of 1.326.807 people, which have an
average purchasing power of ! 25.713, compared to the average purchasing power of the whole
country with ! 18,904 (Eisenblätter 2009)55and a GDP of ! 73 billion (Statistisches Amt, unpub) 56,
Munich is a wealthy place compared to other regions in Germany. It is therewith one of the highest
per capita incomes in Germany, only topped by the Hochtaunus district (near Frankfurt) with !
27.426 and Starnberg rural district with ! 27.095 (Eisenblätter 2009)57 . The Königsallee in
Düsseldorf on the other hand, enjoys the highest traffic with 6.100 people passing through per hour,
given that the weather is moderate. Germany has to offer all in all five top city locations in Munich,
Düsseldorf, Hamburg, Berlin and Frankfurt (Jones Lang Lasalle 2008) 58. In Cushman &
Wakefield‘s Research (see App 6), Munich and Amsterdam perform about equally. Five factors are
performed better by Munich, while at the other five aspects Amsterdam is ranked higher.
27
Factor 1: Best cities in terms of easy access to markets/customers
Result: Munich ranked at 6
Amsterdam is ranked at 9
Factor 2: Best cities in terms of qualified staff
Result: Munich is ranked at 4
Factor 3: Best cities in terms of quality of telecommunication
Factor 4: Best cities in terms of external transport links
Factor 5: Best cities in terms of cost of staff
Factor 6: Best cities in terms of value for money of office space
Factor 7: Best cities in terms of availability of office space
Factor 8: Best cities in terms of language spoken
Factor 9: Best cities in terms of internal transport
Factor 10: Best cities in terms of the quality of life for the employees
(Cushman & Wakefield 2009, p.14-27)59
The ranking shows, that both cities have their advantages and disadvantages, while on the other
hand, Munich performed slightly better at factors which are weighted stronger (factors 1-5).
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Personnel
The store-personnel needs to comply to several requirements when applying for a job in an A&F
store. The staff should speak German or Dutch fluently and master the English language perfectly.
The personnel is a central marketing tool and must represent the brand‘s image at all times.
Therefore it is essential that the personnel has an outstanding outer appearance, clean skin, hair and
nails, a slim figure and natural charisma.
The consumers should be able to identify themselves with the personnel, which is why girls and
boys aged between 18 and 25 should serve inside the store.
The employees need to have a good sense of style and must be able to give effective and polite
advice. The personnel is responsible for the customer‘s well-being and acts as a friend who gives
feedback and offers suggestions for improvement while keeping a moderate personal distance.
3.5 Standardization and Differentiation:
Going global, means planning ones product strategy very carefully, depending on the market which
will be entered. The question, which needs to be answered at this point is: Do we need to adapt
Abercrombie‘s Marketing Mix to the local conditions or do we standardize the marketing
approaches worldwide?
The unification of the marketing mix (all approaches and processes) in the international marketing
is called „Standardization“. „Differentiation“ on the other hand is the adjustment of marketing
contents and processes to a notified country‘s culture, needs and demands. These adjustments could
be price segmentation, product segmentation or distribution channel segmentation. A&F has already
proven itself successful in the European market with its store design, model staff and product
assortment, which was completely adapted from its domestic market. The company should use the
origin‘s know-how and continue using „As much Standardization as possible and as few
Differentiation as needed.“ (Meffert, cited in Hermanns 1999, p.1174)60 . Seeking for the
maintenance of the competitive advantage using standardized market cultivation carries several
benefits. Small deviations have yet to be considered and therewith partly differentiated in order, to
get a foothold in the penetrated market.
In A&F‘s case it is necessary to compromise between total standardization and total differentiation.
At this point a distinction has to be made between content-related standardization and process
standardization. While content-related standardization deals with the level of unification of the
marketing mix aspects, frameworks and marketing strategies, the process standardization covers the
unified structuring and the procedure organizational marketing decisions (Meffert 1998, p.155-156)
61. Process standardization simplifies the cooperation between parent company and its subsidiaries,
and among the subsidiaries themselves. Content-related standardization facilitates the
communication among the subsidiaries, as well as towards the parent corporation and is further the
tool for becoming a global brand. Further it is assumed, that extended standardization is only
possible to implement in triad-markets such as Northamerica, South-East Asia and Europe (Ohmae,
cited in Meffert 1998, p. 156)62. Adopting the image and the presentation, as well as the product line
will save costs and enhance the strong brand equity. The complexity in processes will be reduced
and a real „global brand image“ will be developed. High quality must justify the middle-price
which again requires product standardization. Casual clothing gives opportunities to standardize,
whereas corporate clothing or occasional wear are more difficult to adopt, due to strong culture
affinity to fashion habits (Hermanns 1999, p.1173)63 . Young people‘s fashion orientation derives
from magazines, Hollywood actors, singers and other celebrities. This means, that everyone choses
from the same inspirational source, which makes it easier to standardize on the product level.
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On the other hand, differentiation is needed in specific segments in order, to meet the host country‘s
customer‘s needs and demands. The company must understand how seasons alternate during the
year and when retailers order their winter collection in order, to be right on time in the host market.
Still continuing low engagement in magazines, A&F nevertheless, needs publicity in a few
magazines targeting the company‘s target group in the new market. Those have to be chosen wisely
and the advertisements need to be placed correctly.
TV commercials are expensive and are not profitable for companies with only a few stores present
on the market where it is advertised. Moreover, many enterprises have recognized the fact that mass
advertisement has lost its affect, due to a constantly increasing number of channels, viewers
switching the channels during a commercial break and decreasing television viewers (Kotler 2002,
p.178)64. The average Swedish consumer for instance, watches around 3000 commercial spots a
day and remembers only a fraction of the seen (Trout 2009, p.84)65 . TV commercial will only
become profitable when the products it advertises are available to everyone who watches the
commercial (at least demographically).
Apparently, price and location differentiation will play a big role in the internationalization process.
Introducing oneself with higher prices and better locations than back in the US, Abercrombie must
continue the strategy which they have set throughout Europe to stay authentic in their segment.
The enhanced price pressure, coming from the globalization, the hyper competition and the internet
do not make the decision process easier. It is more than ever important to effectively segment the
market, strengthen the branding policy and stay outrageous in Customer Relationship Management.
30
3.6 Promotion
Promotion covers the whole communication of a company to its customers, intermediaries and
investors. The promotion entails personal selling, sales promotion, direct marketing, public relations
and advertising (Kotler 2005)66. The chapter 3.6.1. explains, how advertisement is perceived in the
Netherlands and in Germany.
3.6.1 Advertising in the Netherlands
The motto „Different cultures, different preferences!“ should be taken into account with each step
that is made within the promotion mix of a product / a brand. Many foreigners, especially nonEuropeans believe that the Dutch can be convinced with the same arguments and offers as Germans,
not knowing that with this assumptions they will risk their business abroad.
On the basis, of the gained cultural awareness throughout this thesis, we can now analyze how
promotion works in both nations and what appeals to which countries‘ nature.
The Chamber of Industry and Commerce in Osnabrück-Emsland determined a guideline for
advertising in the Netherlands. It contains one central result, which is of utter importance for
foreign companies who want to gain recognition in the Netherlands. „Dutch customers should not
be addressed as a homogenous group. The response of an ad will succeed more, when it targets one
specific group of people, such as Dutch families or Dutch singles.“ (IHK 2008) 67.
This might stem from the Dutch‘s ambition for individuality, wanting to be someone different and
not just one mass. The acceptance of all kinds of religions and opinions is anchored in their nature,
not accepting taring all people with the same brush. If this finding is implemented well, it makes up
half of the deal already. Additionally, the Dutch have an affinity for detail and design. They prefer
nice looking and harmonized colors and image arrangements, as well as clear messages without
confusion factors. They do not appreciate getting the run-around and strictly avert from the
advertisement when they find out. Honesty and clear statements are perceived as very positive and
are likely to experience a buying action.
At this point, correct positioning is in demand as proposed by Jack Trout, the originator of the
revolutionary idea of positioning. According to J. Trout, strategy work is impossible to implement,
when there is no clear positioning, which leads to a differentiation in the customer‘s memory.
J.Trout targets the question how successful differentiation can be and finds that „The only
possibility to differentiate, entails exploiting the unique and beneficial value of a product.“ (Trout
2009)68.
Further, the Netherlands possess a strong advertisement medium which is as effective as TV
commercials. The reading frequency of daily newspapers is one of the leading in Europe. The
spendings for printed media are by far the highest in the Netherlands (! 2,434,700,000) while TV
spendings do not even get near of half of the budget (Holland 2008)69 . More than 50% of all
households subscribe a newspaper. Furthermore, daily newspapers such as the „Spits“ and the
„Metro“ are given away for free in the metro stations and are not only read by adults but more and
more by young teenagers as well. 72,5 million free paper copies are printed, almost the same
amount as in Germany, considering the fact that Germany has almost five times more inhabitants.
(IHK 2008)70.
31
3.6.2 Advertising in Germany
Frequently, the central argument in German advertising is the low price. Cars, detergents,
insurances, electronic products, apparel and furniture discounter offer advantage pricing, packaging
and financing. German advertising often reminds of barkers on the market along the lines of „who
can offer a lower price than us?“.
Not many Germans like to admit, that price is one of the most important (if not THE most
important) convincing buying stimulators. It is not for nothing, that marketing in Germany uses
price as a central statement for various products. Germans love saving and compare prices more
intense. They get annoyed about fast price reductions after having purchased a specific item for a
higher price, especially when it comes to electronics and apparel. During my internship at Peek &
Cloppenburg KG I was able to correspond to department managers on a daily level, who reported
all complaints and customer opinions to me. Concluding, I believe that I can say that many
customers felt betrayed by fast discounts on clothing and different prices for the same product in
different stores. They often explained, that they feel confused about the value-for-money fact and
how the prices can vary in specialty stores compared to department stores or the internet for
instance. This personal assumption was confirmed by the representative of P&C‘s department
managers, in the report during the seasonal planning period of the company.
When it comes to fashion, most Germans (from 14 to 64 years) get their informations about trends
from shop windows (30%), while magazines are only source of inspiration of 11% of the
consumers. Hence, visual merchandising appears to be a very attractive medium of product
presentation (see App 9). Innovative shop windows lure customers into the shops, more than
fashion magazines do. TV commercial spots (10%) and advertisement posters (8%) do not convince
consumers to buy (Statista 2010) 71. Advertising clothing on television in Germany is not as
effective than other products. According to www.statista.com consumers do not shop elsewhere
when they do not like the advertisement of a specific brand. 41% answered, that the fact that the ad
does not appeal to their preferences, does not depend on their decision to buy or not buy the product
of that brand (Statista 2010)72. The credibility of ads is clearly divided between TV and newspapers.
While 43% rely on newspaper ads, only 27% believe public service television, and 33% believe
what private channels broadcast (Zeitungsmarketing Gesellschaft 2006) 73.
3.7 Distribution Channels:
Germany is a small country compared to the United States, and the Netherlands are even smaller
than Germany. Living in Hamburg, Berlin or Düsseldorf, one will have to plan a long and costly trip
in order, to be able to shop at Abercrombie in Munich. The company should always keep in mind
whom they target. Young people usually do not have the possibility to travel around the world in
order, to shop for a specific brand. Further, considering the expansion plans, A&F has in mind for
the European market it is highly advisable to create an online store which is European consumer
friendly. Until now, A&F distributes its clothing online in the American and Canadian market.
Additionally, the company established a British online store, to please the European customer
(abercrombieandfitchuk.com). But, if compared with the American shipping conditions, the UKpage results in an unprofitable offer for European customers. The shipping costs and the return
requirements and regulations are extraordinary expensive. Exchanging becomes a costly matter
since the buyer is fully liable for the shipping costs of $25. Items can only be returned within 7 days
and returns for money back will be charged with $35 restocking fee and $10 refund handling fees.
32
Those upsetting regulations must be changed and simplified in order, to become a favored
youngster-brand in Europe.
A&F‘s competitor Tommy Hilfiger conducts a German online store, where shipping is cost-free and
where the products are delivered within two to three weekdays (Tommy Hilfiger 2010) 74. Dutch
customers receive their order within three to four weekdays and pay ! 5,90 shipping fees (Tommy
Hilfiger 2010)75. Diesel on the other hand, charges German and Dutch customers with !10 shipping
fees and delivers within three to five weekdays (Diesel 2010)76.
Online Multichannel:
Due to the strong demand in Europe, a newly developed distribution channel concept is essential in
order, to please potential customers in that area. Young people use the internet more than ever to
shop for apparel. According to GfK Geomarketing, the Germans have spent !15,5 billion on the
internet in 2009, of which 21,4% were fashion. Online clothing buys have therefore increased by
24,5% compared to 2008 (AF 2010, p.12)77. According to the Internet World Stats. 85,6% of the
Dutch population are internet users, of which three quarters (about 8,85 million people) have
bought an item through the online channel in spring 2009. The stated main reasons for buying
online were time-independent access, convenience, time saving and access to products which are
not available in the own living area.
But, online shopping can only be successful when the customer is satisfied by the fast delivery and
reasonable transportation costs. The easiest way to understand how reasonable transportation costs
look like and how fast delivery must be ensued, is to investigate what and how much competitors
charge and offer. Looking at the requirements, it can be concluded that creating an online store,
goes along with the establishment of a distribution center in the European area, which will enable
the company to decrease customer costs. Further it might be interesting to offer a free-of-charge
delivery when the purchase increases a specific value. This little „extra“ might prevail customers to
buy one shirt more when one can save the transportation fees.
The virtual shop should keep its American website design, which is clear, calm and easy to handle,
instead of adapting the British design, which reminds of a discount-store. Over and above, A&F
should not fear the loss of exclusivity as much as the loss of potential customers who cannot get
hold of their products. Times have changed, considering that anyone, who can afford it, can buy a n
Hermes Birkin Bag on the Internet (Kaufen.com 2010)78.
3.8 Competitors and Market Share
The fashion retail sector is a polypole type of market which has many sellers and several
demanders. But, some vendors are preferred more than others. Abercrombie & Fitch will enter
competitive rich markets, which have to be analyzed and monitored carefully.
The GAP, which is Abercrombie‘s competitor in their domestic market, tried to become successful
in Germany a few years ago, but failed in their attempt to convince the German customer.
In 2004 the American casual wear retailer had to close all their shops in Germany. The locations and
the personnel were taken over by H&M, while the GAP had to withdrawal from the German market
after only eight years of business in their international market (Fashion United 2004). Further
competitors in A&F‘s domestic market are American Eagle Outfitters and J Crew (Daily Finance
2010)79. Due to Abercrombie‘s international positioning strategy, it will gain new competitors in
that segment. The German and the Dutch market is home for competitors such as Tommy Hilfiger,
Freesoul, Scotch and Soda, Napapijri, La Martina, Replay, Desigual and Diesel if only to name a
few. Tommy Hilfiger generated a turnover of $ 2,250,000,000 in 2009 worldwide (Lindner 2010) 80,
33
while Abercrombie made $ 2,977,000,000 in the fiscal year 2009/2010 (Fashion United 2010)81 .
This equals in a relative market share of 1,32 worldwide towards its biggest competitor Tommy
Hilfiger, which is a positive result for A&F (relative market share = own turnover / turnover biggest
competitor). Monitoring the situation from a different perspective, only Tommy‘s European market
operates a turnover of ! 795.000.000 (Ott 2009) 82, a high figure compared to A&F‘s European
revenue of $ 143.000.000. (FI 2010, p. 34)83. Diesel generates about ! 1.300.000.000 worldwide
while Replay only earns ! 350 million. (Fiedler 2009)84. The direct comparison is stated on the next
page.
In the following table A&F is compared in its marketing mix with its main competitors in the
European market: Tommy Hilfiger, Replay and Diesel:
A&F
Tommy Hilfiger
Replay
Diesel
Products
Apparel,
fragrances and
accessories for
young men,
women and kids
Apparel,
fragrances and
accessories for
men, women and
kids
Apparel and
accessories for
young men,
women and kids
Price
Middle to high
price
Middle to high
price
Middle to high
price
Apparel
(specialized on
denim), fragrances
and accessories for
men, women and
kids
Middle to high
price
Quality
high quality
high quality
high quality
high quality
Style
casual, young,
preppy, playful
classic, sportive,
elegant, preppy
casual, light
colored, playful
stitching
casual, extravagant
cuts, individual
Turnover
$ 2,977,000,000
$ 2,250,000,000
350.000.000 !
1.300.000.000 !
Company Image controversial
image in the US,
new and sexy
image in Europe
good reputation
good
good
global
global
Markets
US, Canada, UK, global
Italy, Tokyo
Target Group
young people,
classic and sportive Individual and
status-and beauty- men and women, casual young
conscious
brand-oriented
people
International
Entry Strategy
subsidiaries
Individual and
casual people,
loving
extraordinary cuts
and patterns
subsidiaries,
subsidiaries,
subsidiaries,
franchise-systems, franchise-systems, franchise-systems,
licensee
licensee
licensee
34
A&F
Tommy Hilfiger
Replay
Diesel
Advertisement
little
strong
less advertisement strong
advertisement, not advertisement + and hardly any TV advertisement +
TV presence at all advertisement for presence any more. TV
fragrance
Store Locations
abroad
Only A-locations
Only A-locations
A-B locations, to A-B locations, to
be found in top
be found in top
locations, as well locations, as well
as in high traffic as in high traffic
middle to low price middle to low price
segment shopping segment shopping
streets
streets
This tabular comparison shows clearly the differences and similarities of the compared brands.
The main similarities can be found within the product assortment, the price strategy and quality. All
four offer a wide range of products, with which they can supply each age group sufficiently.
Abercrombie & Fitch needs to control its reputation within the domestic market, while spreading
the word about the brand in the host markets, without being too provocative in the beginning of the
establishment phase. All three main competitors are global known and distributed brands, which
have a strong value of brand recognition. Abercrombie & Fitch has potential of outrunning the
above mentioned and become a global brand as well, given that the corporation applies the correct
strategies in their host markets and monitors their own performances on a regular basis.
The target groups are akin in their young nature, while A&F and Tommy Hilfiger serve a brand
oriented and preppy typology of target group and Replay and Diesel rather serve a more individual
and less status oriented target consumer. The same is to be found in the choices of store locations.
A&F choose for top locations only in their European markets, while Diesel and Replay stand
somewhere in between, which makes it difficult to typecast both brands. Diesel, Tommy Hilfiger
and Replay operate through subsidiaries, as well as through franchisees and licensees. Their
products are sold in several department stores, multi-label retailers, as well as in their own specialty
and flagship stores. The global brands have a high number of distribution channels in Europe,
which is why TV commercials became profitable for them.
35
Turnover ($)
Relative Market
Share
Absolute Market
Share
A&F
2.977.000.000
0,67
40,03 %
Competitor 1 (TH)
2.250.000.000
0,43
30,26 %
Competitor 2
(Replay)
468.580.000
0,07
6,30 %
Competitor 3
(Diesel)
1.740.440.000
0,31
23,41 %
Total
7.436.020.000
1,00
100 %
The turnover of each competitor has been converted into US-dollar for unified results.
The relative market share has been calculated with the sum of the competitors, e.g.: 2.977.000.000 /
(2.250.000.000 + 468.580.000 + 1.740.440.000).
It is evident from the table above, that A&F has the highest market share worldwide. This is a
strong opportunity for Abercrombie to succeed on the European market as well, although the
current low number of store locations reveal in a lower market share in Europe.
A&F
Tommy Hilfiger
Replay
Absolute Market Share
23%
40%
6%
30%
36
Diesel
3.9 Chapter Conclusion
„Preparing International“ is the most comprehensive and central chapter of the thesis. It contains
nearly all necessary approaches for a proper market analysis in order, to be prepared going
international. Comparing the German and the Dutch market it is evident from the analyses, that
several differences are present. Not only economical and institutional disparities, but also clear
socio-cultural distinctions have to be made between the two bordering nations.
Despite of the fact, that the Netherlands‘ population is only 20,20% of Germanys‘ inhabitants, the
country is wealthy and politically extremely stable. Moreover, the Dutch have a 15,5% stronger
purchasing power than the average German due to a higher per capita income and therewith an
increased disposable income. Nonetheless, the Netherlands economic growth rate dropped almost as
deeply as Germanys‘ during recession, heavily depending on exports and imports from other
countries. The consumer confidence decreased for the year 2010, which is an indicator for low
frequencies and sales in the retail sector. Consumers are pessimistic and fear further unemployment,
which reduces consume joy. In Germany on the other hand, the retail sector, as well as the
consumer confidence, are in a stable position.
The Netherlands do not offer attractive A-location opportunities, as much as Germany does. Due to
its limited space, Amsterdam becomes an obstacle, while other Dutch cities do not seem to have a
similar attractiveness due to concentrated buying power in the area of Amsterdam.
A further question which has to be considered is, whether the Dutch or German people would buy
the brand Abercrombie & Fitch. In order, to find out about the different preferences, both
countries‘s socio-culture had to be analyzed. It showed, that the Dutch are a tolerant, rather reserved
and privacy loving nation. Modesty and decency are typical Dutch characteristics, usually not
appreciating obvious display of wealth and swagger behavior. No matter if rich or poor, the Dutch
insist on unique respect towards every person. Germans are rather objective driven, achievement
and brand/status oriented people. They prefer having their situation under control and are firmly
interested in minimizing risks. These attributes are underlined and deepened by Geert Hofstede‘s 5
dimensions, which have shown that Germany has the highest score in uncertainty avoidance and are
ranked lowest in the category of individuality. The US on the other hand are the most individual of
all three nations, just above the Netherlands. The most significant difference in Geert Hofstede‘s
theory is the masculinity dimension, in which the gap between Germany (high) and the Netherlands
(low) is the largest. All three countries are furthermore rated long-term oriented, which is an
indicator for long-term awareness and therewith associated behavior.
Afterwards, it is depicted that the Dutch have a valuable advantage towards Germans when it comes
to multilingual abilities. The distance to the domestic market can be overcome easier when both
counterparts master the same language without disadvantages on one side. A further factors which
might intimidate the fluent corporate process can be eliminated by as much standardization of the
marketing approaches as possible. Nonetheless, the findings have also shown, that a company
expanding beyond its national borders will not forgo differentiation in some processes, such as the
choice of distribution channels or seasonal adaption within the domestic market. The multichannel
trade has to be further developed and order regulations need to be adapted. Advertising needs to be
advanced due to strong competition within the casual wear sector and the deviation between the
countries preferences and the level of acceptance.
37
4.0 GOING INTERNATIONAL
4.1 Market Entry Strategy:
After all preparations have been set, the company can start to go international.
There are several ways containing several levels of involvement when entering a foreign market,
such as importing or exporting activities, contractual agreements, which is a limited direct
investment (franchising, foreign licensing, subcontracting) and international direct investment.
By entering a market with international direct investment, a company decides to carry the highest
financial investment and simultaneously the deepest active involvement in the internationalization
process. It can choose between the option of acquisition, in which a company buys off an already
existing enterprise in the host country, joint venture, in which the expanding company becomes a
partner of an existing firm in the host country or the establishment of a subsidiary. Subsidiaries are
legally independent, but economical fully dependent enterprises which are controlled by the parent
corporation.
A&F holds the subsidiaries Abercrombie & Fitch, abercrombie, Hollister, Gilly Hicks and RUEHL,
which was dropped after decreasing sales and bad turnover during the recession period of the last
years (Fashion United 2010) 85. The common distribution center and the head quarter is situated in
the United States. The establishment of subsidiaries abroad brings along an extensive transfer,
although a few offices are situated in the UK and Italy. Frequently, tensions arise between parent
corporations and their subsidiaries due to en error in intercultural management. While parent
corporations strive for a global standardization of the corporate culture, subsidiaries prefer the
adaption of strategies and corporate cultures onto the culture of the host country.
It is therefore wise to decide whether the Chief Executive Officer should be responsible for all
markets or whether to chose a separate General Manager for specifically segmented demographical
areas. This could be a GM for the European market, the Asian market etc. or even a country-specific
person in charge. A&F should staff their executive board with someone right from the parent
corporation cooperating with a market maven from Germany or the Netherlands who is familiar
with the market. That way, both interests can be represented and discussed.
Dr. Howard V. Perlmutter (1969) once analyzed the international companies‘ basic attitude towards
its subsidiaries in the processed market. Thereby, he distinguished between ethnocentric,
polycentric, and geocentric cultures (Perlmutter, cited in Economics University Manuscript)86.
The ethnocentric culture is home country oriented, meaning that the company is actively working
internationally while having one domestic leading culture. Those are usually exporting enterprises.
„Polycentric“ companies are host country oriented, always interested in safeguarding their
international corporate success, numerous reworking operations in the national markets and a large
scope for the subsidiaries‘ decisions. The „geocentric culture‘s“ (world-oriented) intentions are to
improve international contest ability, the implementation of an ideal strategy which works on a
global level, the integration of all corporate activities into one whole system, the compilation of the
world market without national orientation and finally the deliberate acceptance of national
suboptimal strategies. Geocentric orientation pursues the goal of global operation of all subsidiaries,
technical standardization and the realization of cost advantages (Meffert 1998, p. 26-28)87.
38
Currently, Abercrombie is on its way to become a multinational enterprise with a polycentric
orientation. The future central goal of internationalization is no longer the protection of the
domestic corporation existence, not being able to adjust to country-specific features, but rather the
safeguard of international corporate success. It is not precluded, that a well-recognized brand such
as Abercrombie might develop globally oriented operations in the future. It is rather advisable to
establish a geocentric orientation for global management in the future.
4.2 Timing Strategy:
Not only it is important to know in which organizational form to entry a market but furthermore
when to introduce the new brand to the host market. The right timing has to be considered and a
strategy has to be chosen and implemented. Several options are available:
- Waterfall timing strategy (Successive)
- Sprinkler timing strategy (Simultaneous)
- Bridge-head timing strategy
Using the Successive timing strategy, markets are opened one ofter the other. Usually, a company
using this strategy, starts internationalizing markets which resemble the domestic market
(demographically close and similar in their culture). This step-by-step strategy is safe and leaves
time to react to changes and national specialties.
The simultaneous timing strategy, on the other hand allows a market entry into several markets at
the same time or during a very short time-period. With this, branding loyalty and brand image can
be developed and invested capital is fast to be retrieved.
Surely, the Sprinkler-strategy carries higher risks, such as problems coordinating several openings
simultaneously and the necessity of high investments.
A compromise between the above mentioned timing strategies is the Bridge-head strategy.
Firstly, only a few markets are opened either by using the successive or the simultaneous move.
These markets carry a significant role in the specific region chosen. From these markets on, which
serve as a base, new markets are opened up in the chosen region. That way, companies can use the
the bridge-heads‘ know-how and adopt it onto neighboring countries/markets (Weis 2003, p.
128-131)88.
A&F uses the bridge-head timing strategy by entering slowly only a few international markets
simultaneously (Milan, Tokyo, London and Hamburg with Hollister) in order, to test them for its‘
other subsidiaries Abercrombie & Fitch, Hollister, abercrombie etc.
After the subsidiaries have proven themselves in the host market, the bridge-heads should not serve
as pilings any longer, but rather exist and generate profit on their own. This process increases the
operative effort but if implemented correctly, the further expansion will result in great success.
39
4.3.1 SWOT - GERMANY
Strengths
Weaknesses
- Large economy (4th largest in the World)
- Most important European country for direct
investments for international enterprises
- Legal security
- Politically stable economy
- No restrictions or barriers to capital
transactions or currency transfers, real estate
purchases, repatriation of profits, or access to
foreign exchange
- Largest textile market in Europe (! 39 billion
turnover volume)
- Five German cities in the top 15 of best
locations for business in ranking
- „Tax-jungle“ complex taxation-regulations
- Development into a firm bureaucracy
- An insufficient capital base in the middle-class
(due to tax-disadvantages), which is targeted.
- The young fashion sector occupies only ! 6,2
billion of the total of ! 39 billion turnover
volume
- Higher wage level compared to the
Netherlands--> disadvantage for productivity
and competitiveness
Opportunities
Threats
- Higher consumer confidence than in the
Netherlands for the next years
- Demand for A&F clothing
- Germans are more status oriented and
appreciate the meaning of a symbol such as the
A&F moose (Hofstede)
- Germans are more brand oriented and have a
strong loyalty to brands which satisfy them
- Corporate income taxes have been lowered
- TW: people want innovation, want new brands
in the assortment
- Mostly dense populated country in Europe
- The aftermath of the world financial crisis
- Sinking consumer confidence and willingness
to buy
- Rising unemployment rate prognosis
- Consumer‘s sinking income-expectation
- Sinking purchasing power: for 2010 it is
expected that the Germans will have a yearly
average of ! 18.904 subsistence (Purchasing
Power measures the available net income of the
population inclusive public payments)
- By virtue of decreasing income and a drop in
population (-216.000 people) Germany is
missing ! 7,5 billion or 0,5% purchasing
power.
40
4.3.2 SWOT - THE NETHERLANDS
Strengths
Weaknesses
- High stability due to strong economy
- Lack of skilled workers
- Trading-nation, „trading-mentality“
- Shortage of first class location for a flagship
- Intercultural openness and experience
store in the capital city Amsterdam! (PC
- Financial savings in the government budget
Hooftstraat is a very short street!)
- Higher per capita income
- National culture less interested in status
- Lower corporate tax rate 25.5% ( advantage for highlighted clothing
direct investments)
- The only attractive location in the Netherlands
- High tourism in Amsterdam
is Amsterdam, which is ranked at number 8 for
- Lower wages than in Germany
best business locations according to Cushman
- High internet usage
& Wakefield Research (Munich is ranked at 7)
- Lower property rents
- few value for money office space
- strong multilingual abilities
Opportunities
- Many tourists from other countries, knowing
A&F, are potential customers
- Potential for extension of infrastructure and
space
- High potential of fast recovery from the
recession
Threats
- The aftermath/ continuing effects of the world
financial crisis
- Low willingness to buy - attitude in 2010
- Low consumer confidence in 2010
- Rising unemployment
41
4.4 Which market has the highest market potential?
The market potential is a markets‘ capacity for a product/ brand.
In order, to identify the market potential of both countries it is useful to make a market
segmentation first. Starting with the city of Munich:
Munich figures
Munich population
1,367,314
Region 14 population
(Surrounding counties &
Munich)
2,644,807
18-25 year old (in Munich)
137,600
18-25 year old in Region 14
(Total Target Group)
266,068
German average clothing
expenditures
888 !
The city of Munich has a total population of 1,367,314 inhabitants, of which 137.600 (Statistisches
Amt München 2009)89 are aged between 18 and 25 years, which is the target group (see App 7).
This equals 10,06% of the total inhabitants. With this knowledge, it can be assumed that about 10%
of the surrounding Region‘s 14 (Statistisches Amt München 2008)90 (see App 8 for detailed county
overview) population is aged between 18 and 25 years as well. Taking this information into
account, the calculation results in a total target group of 266,068 potential customers.
Further, using the information that Germans spend on average ! 888 per year on clothing we can
now approximately calculate the market potential excluding foreign and national tourists:
266,068 x ! 888 = ! 236,268,384 market potential in the city of Munich.
The difficulty in finding the real market potential of Munich including foreign tourists, is the lack of
information about the amount of foreign tourists who are within A&F‘s target group and, more
importantly their spending behavior. We cannot assume that tourists spend !888 as well on clothing.
Moreover, tourists often deviate from their usual buying behavior in their domestic country, when
traveling around the world, which again confuses the statistic.
Concluding it is to say, that exact statistics do not exist about how much tourists spend on clothing
in Munich and in Amsterdam. There would have been possibilities to find statistics about
approximate tourist spendings, since it is an essential economic figure affecting the GDP, but
specific figures segmented by cities are hard and almost impossible to get.
42
Amsterdam figures
Amsterdam population
Gooi Amsterdam population
755,605
1,260,282
10-20 year olds
128,691
20-40 year olds
389,654
20% of 10-20 year olds
38,607
25% of 20-40 year olds
97,413
Total Target Group
Dutch average clothing
expenditure
136, 020
732 !
The area around Amsterdam called Gooi Amsterdam includes several cities from Haarlem to
Hilversum (please see App.), inhabits 1,260,282 people. Assuming that 20% of the 10-20 year olds
are aged between 18 and 20 years, would result in 38,607 young people. Additionally, estimating
that 25% of all 20 to 40 year olds are between 20 and 25 years, reveals in 97, 413 people. Summed
up, this would result respectively in a total Dutch target group in this area to 136, 020 people.
Now, that the total number of potential Dutch customers have been calculated, the market potential
of Amsterdam might look like the following for the products of A&F:
136,020 x !732 = ! 99,566,640 market potential in the city of Amsterdam (excluding tourists, due
to different per person expenditures).
At this point it is to mention, that surely several thousands of people come to Amsterdam from other
Dutch cities. Those might be potential customers as well. Unfortunately, it is nearly impossible to
find out, how many of those who are able to come to Amsterdam for shopping, are ranked within
A&F‘s target group. In order, to keep the figures rational and clear, the market potential is
calculated without foreign or national tourists, who in deed come to Amsterdam to spend money on
shopping.
43
4.5 Chapter Summary
The forth chapter deals with final decisions a company must make to proceed internationalization.
Abercrombie has chosen to enter the market by opening subsidiaries around Europe, investing the
highest level of financial and decision involvement. Direct investment is costly but carries several
advantages such as strong control over all steps in the pipeline of processes.
Discrepancies between parent corporation and subsidiaries can be eliminated by a parent company‘s
representative General Manager who cooperates with a national manager in the host country.
Know-how and experience can be exchanged, as well as regulations controlled.
Abercrombie is on its way to operate on a multinational level. The polycentric corporate orientation
arose from the ethnocentric orientation, which was the ground brick for further internationalization.
Giving subsidiaries a scope for decisions and concentrating on the international corporate success
indicates the firm‘s growth process, which it must continue throughout its internationalization path
by slowly developing global operations, resulting in cost advantages and a stronger global brand
image.
The choice of the bridge-head timing strategy is advantageous for a company which has the
financial resources in order, to afford simultaneous establishments. Testing various market with a
few stores in order, to spread in the aftermath when business proved itself beneficial.
The SWOT summarizes all strengths, weaknesses, opportunities and threats that each country has to
face. It illustrates competitive advantages towards the other country in a brief overview.
Utterly important is the calculation of a market‘s potential, which indicates the markets‘ capacity
for a specific product or brand. Munich has a strong market potential for A&F clothing of about
! 364,612,800, while Amsterdam‘s market potential is only 57,22% of the Germans‘ with
! 208,631,712.
44
5.0 BEING INTERNATIONAL
5.1 Controlling Performances with the BSC Scorecard
After having entered the market and established its position within the market, the
internationalization process has to be continued. Before doing so, previous strategies and
approaches have to be controlled, measured and improved or changed. Apparel is linked to a
lifecycle and demands therewith constant updating according to trends and seasons, customer needs
and wants. Furthermore, during an internationalization phase many decisions are made and
strategies are built, which creates the necessity to control all activities based on the company‘s
vision. Nowadays, it is impossible to solely rely on financial reports in order, to translate mission
and strategy into goals and measures.
The Balanced Scorecard (Kaplan & Norton) is a strategic planning and management tool, that is
used to measure and filter out the company‘s efficiency and effectivity from four perspectives. It
helps to translate a company‘s vision into actual implementation. The difficulty is to measure not
only financial data but also intangible assets and capabilities (Heinemann 2009, p.115) 91. The
Balanced Scorecard supports the managers in capturing problems in specific business units in order,
to eliminate those. In this thesis, the main focus is lying upon the international marketing processes,
which are implemented onto the scorecard and which are of utter interest to control. This means,
that the following perspectives are adjusted and interpreted to international activities, goals and
measures:
1. Financial Perspective: Which impression does A&F convey to its shareholders and how did the
company financially perform? What is its financial goal in the host countries and how do they
want to achieve this goal?
2. Internal Business Perspective: Do their products and their services meet customer demands and
wishes in the host country? Does the communication pipeline display any gaps or barriers? Does
the distance to the domestic market influence the internal processes in a negative way and do
mother corporation and subsidiaries follow the same mission and vision?
3. Customer Perspective: How does the customer see A&F? Does A&F meet customer satisfaction
with its fashion assortment and its product quality? Does A&F meet customer satisfaction with
the services offered (POS service and Online Store service)? How much customer loyalty and
how much customer retention does A&F have and what are the reasons for that?
4. Innovation and Learning Perspective: Which markets have a strong potential for further
expansion plans? Are there new customers which A&F can reach and convince?
45
Financial Perspective
Goals
Measures
- Growth in the host market
- Cash flow
- ROCE
Customer Perspective
Goals
Measures
- High customer satisfaction and acceptance
- Customer loyalty
- At POS customer response cards
(questionnaire) and an online evaluation portal,
amount of returns with a statement of the
reason for return
- Online analysis of the buying frequencies per
customer, on-time delivery and affordable fees
when buying online
Internal Business Perspective
Goals
Measures
- A professional and polite in-store personnel
- The application of a test-buyer who evaluates
his/her shopping experience, treatment and
service without the knowledge of the personnel
- The application of an executive manager from
- A unified communicated vision and company‘s the parent corporation who communicates the
mission to all members of the business chain.
firm‘s values and vision
- A fluent working communication pipeline
- A global standardized process system
- Improvement of Online Trade --> faster
- The establishment of distribution centers in
delivery, lower delivery fees, improvement of
Europe
return policy
46
Innovation and Learning Perspective
Goals
- Finding new markets to expand into
- Skilled employees
Measures
- Using existing know-how from current
penetrated regions/ markets and its
internationalization strategies
- Store manager‘s, visual merchandiser‘s and
sales personnel‘s training
5.2 Expansion
Once started internationalization, a company must use the gained knowledge from the established
new markets for further expansion. It becomes essential to investigate the own performance in the
host country critically. Therefrom, a company can start expanding within this country for instance.
Alternatively, the knowledge might be used for a specific country region such as Western Europe.
Nevertheless, each new market has to be analyzed from the „Preparing International“-phase on,
having learned, that each country has its specialties, norms and values.
After having gained experience in the penetrated market, a company might also contemplate an
additional market entry strategy such as a joint venture or acquisition. In a multinational company it
is sometimes advantageous to start a franchising concept, which will save costs in the long run.
The franchisor and the franchisee are connected by a contractual agreement, which gives the
franchisee the permission to sell the franchisor‘s (A&F) products under its brand name, following
certain regulations. Both parties share the same interests, namely to distribute the products and
services fast and efficient. The franchisor profits from the contractual agreement due to the
acquisition of a highly motivated management partner, since the franchisee works autonomous in
order, to keep his business alive and make profit. Furthermore, the franchisor is not responsible for
the running operations and invests only little money for setting up the business, because the
franchisee agrees on an own private equity, which he invests in his business. The contractual
agreement states in how far the franchisor‘s partner is being supported, for instance with
merchandising, in-store promotion support, bookkeeping personnel, possibly sales personnel,
training into standardized ERP or other systems. A&F would have strong regulations when it comes
to its shop interior, arrangement and personnel. The franchisor would not have too big of a decisionscope and his own main duty would arise in bringing profit by given regulations. Yet the reverse
side shows, that the franchisor will give up a large part of operational control, while the franchisee
might not perform to A&F‘s standards which might effect the process pipeline
(Müller 2009, notes)92.
47
5.3 Chapter Summary
The modern world, rotating faster than it ever did before, forces companies constantly to keep up. It
forces to look at things from different angles in order, to satisfy each stakeholder which is
connected to the business. Meanwhile, financial reports are by far not enough information to find
the lack in the business, which is why the Balanced Scorecard builds a central measurement tool for
the majority of successful enterprises. The direst investment into foreign markets brings along a
high financial risk, therefore A&F should strive for a fast return on equity employed and therewith a
high EBIT. In order to achieve a higher EBIT, the revenues have to be increased compared to the
sales generated in the domestic market. A&F‘s customer perspective goals should develop into
strong customer satisfaction and acceptance in the host market, which can be measured by customer
response cards at the POS, an online evaluation form for customers to fill in and stated return
reasons. Online buying frequencies give indication of customer loyalty, which can be improved by
shorter delivery time and lower delivery fees.
A central internal goal for a multinational company is to strive for an achievement of a smooth
communication pipeline between parent corporation and subsidiaries. The success can be measured
by placing an American manager, carrying the know-how of the business already, into the host
market in order to support and control the national managers in their activities and decisions.
Finally, the establishment of a European friendly online sale portal, accompanied by a European
distribution center, will please the customers and increase customer satisfaction and loyalty. A&Fs‘
innovation and learning process should must include further European expansion, by using the
applied strategies and know-how in order, to create new Marketing plans. Comprehensive training
for visual merchandisers, floor managers and other connecting links of the business chain will result
in better strategy implementation and will smoothen the communication pipeline.
Further expansion is useful, once the entry into the foreign markets proved itself successful.
After the consideration of the current situation condition, A&F might start thinking about
decreasing the costs and effort of internationalizing by contractual agreements for a franchising
concept.
48
6.0 Final Conclusion
After having analyzed the German and the Dutch nations‘ nature in several scopes, the necessity for
a deviation between the two cultures became clear and unavoidable. A company‘s management
must understand the culture of the host market in order, to be able to operate successful and
politically correctly. Negotiations and cooperations become easier and if implemented in a
professional way, risk of failure will be minimized. The outline of the thesis depicts the
internationalization action-taking process which guides the retailer through several aspects, which
need to be considered when expanding beyond the national borders.
Putting oneself in the position of Abercrombies‘ Marketing consultant, it could be recommended to
internationalize in Germany first, before expanding the business to the Netherlands. The
investigation showed, that Munich or Amsterdam tender for perfect shop locations. Both cities
comply the requirements for Abercrombie‘s expansion plans. The cities are well visited by tourists,
they are home for many people and are purchasing power centers in their country. Germany and the
Netherlands have stable economies and provide foreign direct investors with several advantageous
opportunities. Nevertheless, a market entry for a brand like Abercrombie will yield a greater success
in Germany than in the Netherlands for the following reasons:
1. Munich has a greater market potential, due to higher purchasing power, larger target group in and
around Munich and more rental opportunities in top-locations
2. Germany inhabits 5 times more people than the Netherlands
3. Germans value brand identities
4. Germans favor status symbols and show brand loyalty
5. Germans show a higher consumer confidence
6. Germans spend more money on clothing per year
7. Munich‘s high streets generate more profit and are ranked highly in surveys
8. Munich has a higher tourism traffic (potential customers?)
9. After Cushman & Wakefield, the location Munich has a better access to markets and customers
10.After Cushman & Wakefield, the region of Munich offers better qualified staff
11.After Cushman & Wakefield, Munich‘s employees enjoy a better standard of living
12.After Cushman & Wakefield, Munich‘s quality of telecommunication is better developed
The disadvantages of the German market are reinforced due to higher corporate taxes, bureaucracy
and in general, the decreasing incomes due to rising unemployment and dropping population.
All in all, the analysis of both markets showed the advantages of the German market for
Abercrombie & Fitch Co., which stands representational for other fashion retailers in the same
sector. The final thesis has overall shown the various aspects needed to be considered and
implemented when expanding abroad.
It can clearly be said, that Marketing is not just a creative idea but much more a tool to analyze,
understand and to create a competitive advantage within a business. It is essential in all stages of a
company, from the very first idea, to the final implementation and maintenance of a business.
Marketing actions should be adapted to the host markets conditions. Naive standardization will
yield the business into a strategically planned failure.
49
APPENDIX
1) Geert Hofstede‘s Dimensions Summary
Country
PDI ID MA UA LTO
V S
I
Malaysia
104 26 50
95 6 37
36
95 11 44
94 32 64
86
81 30 69
81 12 73
82
80 20 66
80 38 52
40 118
80 38 52
80 38 52
68
80 38 52
80 38 52
68
80 38 52
United Arab Emirates 80 38 52
68
Ecuador
78 8 63
78 14 46
67
77 20 46
77 48 56
54 16
77 20 46
77 20 46
54 16
74 20 48
69 38 49
8
68 71 43
68 25 57
86
68 60 64
67 13 64
93
66 19 40
66 37 45
94
65 75 54
64 27 41
94
Guatemala
Panama
Philippines
Mexico
Venezuela
China
Egypt
Iraq
Kuwait
Lebanon
Libya
Saudi Arabia
Indonesia
Ghana
India
Nigeria
Sierra Leone
Singapore
Brazil
France
Hong Kong
Poland
Colombia
El Salvador
Turkey
Belgium
Ethiopia
101
44 19
76
68
68
68
68
48
40 61
54 16
48
76 65
29 96
80
85
52 25
50
Kenya
Peru
Tanzania
Thailand
Zambia
Chile
Portugal
Uruguay
Greece
South Korea
Iran
Taiwan
Czech Republic
Spain
Pakistan
Japan
Italy
Argentina
South Africa
Hungary
Jamaica
United States
Netherlands
Australia
Costa Rica
Germany
United Kingdom
Switzerland
Finland
Norway
Sweden
Ireland
New Zealand
Denmark
Israel
Austria
64 27 41
64 16 42
52 25
64 27 41
64 20 34
52 25
64 27 41
63 23 28
52 25
63 27 31
61 36 38
104
60 35 57
60 18 39
112
58 41 43
58 17 45
59
57 58 57
57 51 42
74
55 14 50
54 46 95
70
50 76 70
49 46 56
75
49 65 63
46 55 88
49
45 39 68
40 91 62
13
38 80 14
36 90 61
53 44
35 15 21
35 67 66
86
35 89 66
34 68 70
35 25
33 63 26
31 69 8
59
31 71 5
28 70 68
29 33
22 79 58
18 74 16
49 30
13 54 47
11 55 79
81
87
64 56
86
100
85 75
69 87
86
92 80
86
82
46 29
51 31
65 31
58
50 20
35
23
70
51
APPENDIX
2. GfK Purchasing Power Netherlands 2009
52
APPENDIX
3. Amsterdam‘s surrounding cities including the capital city
10-20
20-40
Total
20% von
10-20
25% von
20-40
Total
Target
Group
15.206
42.444
148.191
4.561,8
10.611
15.172,8
Bloemenda
al
2.906
2.829
22.069
871,8
707,25
1.579,05
Landsmeer
1.319
1.874
10.139
395,7
468,5
864,2
Amstelveen
8.827
19.385
79.768
2.648,1
4.846,25
7.494,35
Diemen
3.144
6.455
24.361
943,2
1.613,75
2.556,95
Muiden
811
1.083
6.561
243,3
270,75
514,05
Naarden
2.199
2.695
16.998
659,7
673,75
1.333,45
Bussum
3.651
6.822
31.979
1.095,3
1.705,5
2.800,8
Huizen
5.488
8.797
42.040
1.646,4
2.199,25
3.845,65
1.100
1.209
8.987
330
302,25
632,25
Laren
1.287
1.813
11.585
386,1
453,25
839,35
Weesp
1.851
4.419
17.577
555,3
1.104,75
1.660,05
71.916
268.083
755.605
21.574,8
67.020,75
88.595,55
8.986
21.746
84.422
2.695,8
5.436,5
8.132,3
128.691
389.654
1.260.282
38.607,3
97.413,5
136.020,8
Haarlem
Blaricum
Amsterdam
Hilversum
Total
53
4. GfK Purchasing power in Germany 2009
54
APPENDIX
5. Street location world ranking
55
6. Cushman & Wakefield Survey
56
57
58
59
60
61
62
APPENDIX
7. Population in age-groups in Munich (target group)
8. The development of the Population in the Region 14 around and in Munich
63
9. Where do Germans inform themselves about clothing before they decide to buy?
64
(10a) UK A&F „home“ website
(10b) Assortment overview
65
(11a) US A&F „home“ website
(11b) Assortment overview
66
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