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How would you describe Lululemon's market segmentation strategy




1. How would you describe Lululemon's market segmentation strategy? Who do you think;are Lululemon's typical customers? What generic business-level strategy is Lululemon;pursuing? Does this strategy give it an advantage over its rivals in the athletic clothing;business? If so, how? In order to successfully implement its business-level strategy, what;does Lululemon need to do at the functional level? Has the company done these things?;Lululemon is pursuing a narrow focused differentiation strategy. They offer a very unique and;distinctive product to a niche market. They have targeted a higher end customer that values;functionality and fashion and are not price cautious by pricing their goods higher than their;competitors and creating innovative, stylish clothing. They have used a customer specialization;focus strategy to maintain a variety of product to their niche target market. They are also very;responsive to customer needs. Since Lululemon has a strong product differentiation from their;competitors, they have also followed a profit margin strategy. By using their benefit advantage;Lululemon is able to charge almost 3 times as much as rivals.;This strategy gives them an advantage over their rivals in the athletic clothing business. By;targeting a high end, specific market, Lululemon does not have to compete directly with low;cost, big box athletic clothing business. They are able to charge a higher price over their;competitors. By being able to charge more than their competitors, Lululemon is able to focus on;quality, product differentiation, innovation and customer responsiveness. Lululemon main focus;is product quality. They make sure all their products are up to par. If a product is not up to their;standards, they will issue a recall and give the customers a refund. They maintain demand for its;products in a smaller market by rotating products every 3 to 12 months. This allows the;customers to come back to store and be able to see new and fresh products. The customers are;also pressed to buy a product that they like right away since it might be gone the next they come;into the store. Lululemon has been innovator on multiple fronts. First, their clothing only use the;best technical fabrics. The opted to create their own stores instead just selling in other high end;clothing stores. They staffed stores with employees who a passionate about fitness and fit in their;particular culture. They have a supply chain that react quickly and fast where they can rotate;products in and out of stores. They have created new way to respond to the customer. They are;able to retain customer more effectively than their competition since they have heavily invested;in their responsiveness to their customer. The employees are taught to listen to all customers;record their complaints and forward them to headquarters. The CEO will even take time to go to;the store and listen to the customer. This allows her to make swift changes to anything is;negatively affecting the customer or customer experience. The employees also need to be;passionate about fitness. They will have expertise for the customer, if the customer has questions;since the employees are part of the culture;Lululemon has been able use their multiple functional strategies to create and maintain superior;value to their customer. The following functional strategies have been implemented successfully;at Lululemon to create value and superior profitability for their firm.;Learning Curve: Lululemon has been able to take advantage of learning effects. Almost 70% of;store managers are internal hires that used to work on the shop floor. These managers will be;efficient since they are already ahead of the learning curve and can use their experience to reduce;cost of training new employees.;Marketing: Lululemon has relied on a good marketing strategy. They have used price;promotion, distribution and product design to differentiate themselves. They demand a higher;price to target the high end market. They promote their products;Quality: As stated above, Lululemon has focused on creating quality products for their;consumers.;Innovation: As stated above, Lululemon has been innovative on multiple fronts. They make a;high quality product that only uses the best technical fabrics. They have innovated their;distribution by creating their own stores. They have also innovated around their supply chain by;being able to turnover inventory in 3-12 months with brand new products, while still outsourcing;the manufacturing process to keep costs low.;Responsiveness to customers: Lululemon has invested heavily in their customer responsiveness.;As noted above in more detail, they hire employees that are already into fitness. They have put in;practices to note customer complaints quickly and escalate them.;2. In rivalry what are the differences between horizontal differentiation and vertical;differentiation? What endogenous strategies could firms use to manage rivalry? What is;the difference between firm strategies to manage entry and blockaded entry? What;strategies could firms use to manage entry?;Horizontal differentiation used by firms is to alter certain aspects of their product, so within their;target market, some customers will like the change and some may not like the change. It;basically helps segment the target market. Vertical differentiation strategy is used to make;benefits to the product that all consumers will deem better.;To manage rivalry, firms can use price signaling, price leadership, non-price competition and;capacity controls. In price signaling, firms can use a tit for tat strategy to make pricing;cooperative since each firms knows that if they cut prices their rival will match the cut. Price;Leadership is where one firm always announces a price change and the other firms will follow.;Non price competition is used to differentiate a firms product from their competitor. This;includes market penetration (expanding market share in existing markets), product development;(Creating new or improved products) and market development (Finding new markets).;Firms manage entry when they use a business level strategy to obtain or sustain a competitive;advantage over competitors. Firms use strategy to achieve success over their competitors. These;strategies have a goal of make sure any potential entrants will be dissuaded into competing.;Blockaded entry occurs when structural barriers are so high that the firm does not need to do;anything to deter entry.;Specific strategies to manage entry include limit pricing, predatory pricing and excess capacity.;The incumbent can use contestable limit pricing where the firm has excess capacity and can set;prices below the entrants marginal cost and the incumbent can meet market demand at the low;prices. Strategy limit pricing is used when entrant has limited capacity or rising marginal costs.;The low price deters entry when the entrant infers that post entry price will be low. Predatory;pricing happens when a firms sets the price below marginal cost and expects to recoup the losses;after the competition exits. By holding excess capacity, the incumbent can threaten to lower price;if any entry occurs, which will deter entry.;View Full Attachment;Test2_Lulu.pdf Download Attachment;Additional Requirements;Min Pages: 1;Max Pages: 2;Level of Detail: Show all work


Paper#18460 | Written in 18-Jul-2015

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