The Four Characteristics of the Company's Marketing 4
2) The Problem Area of Kathmandu NZ. 4
Performance Objectives & Purpose of Operation. 4
The Four Vs analysis 5
Causes of the Problem: 6
Factors Causing the Problem 6
Problem Statement 7
3) The Root Causes of the Problem: Key Objectives of the Operation. 7
The Root Cause: 7
The Key Objectives of the Operation: 8
Quality Performance Objective 8
Speed Performance Objective 8
Dependability Performance Objective 8
Flexibility Performance Objective 8
Costs Performance Objective 8
4) Planning: The Preventive and Corrective Actions. 9
The corrective actions 9
The preventive action 9
Chart 1: E-commerce Planning Flowchart: Kathmandu NZ. 9
Steps to introduce change 11
Cost/Benefit Analysis: Tangible and Intangible Benefits. 11
5) The Problem Resolution: Checking Effectiveness. 12
6) Implementing the New Process as Standard. 13
What result 13
Who performs the work 13
Where the work performed 13
When the work performed 13
Whether the work performed 13
What information the work employs 13
How thoroughly the work performed 13
7) Future Actions. 14
Kathmandu NZ: Operations Management.
Although the Company Kathmandu NZ planned to increase its market share and global presence in 2015 in fact, the company was not able to implement those changes because of 50% decrease in the revenues. The company has taken the immediate actions to solve the problem; it started from gathering, analyzing the information and changing the team culture.
1) Organizational Context.
The company Kathmandu Holdings Ltd. (in the future referred to as Kathmandu NZ or Company) is the New Zeeland retail store group specializing in the sale of sporting apparel, and technical outdoor gear. The company listed on the Australian and New Zealand stock exchanges in 2009. Kathmandu NZ has the insignificant online presence and serves 5% of its customers through the company's website kathmandu.co.uk (Kathmandu 2015) and 95% through the more than 150 stores in Australia, New Zealand, and the United Kingdom. The company is the global brand with a capability to ship goods to more than 40 countries (Kathmandu 2014).
The former CEO of Kathmandu NZ Mark Todd took a position of chief operating officer and finance director since 1998 announced his resignation in 2015. The company replaced his positions of CEO and CFO in one with two different positions of chief financial officer Reuben Casey and the new chief executive officer Xavier Simonet. The board has highly valued Mark's retail acumen for the time being. What is an explanation of the resignation of such a successful SEO? How the company marketed its goods?
The Four Characteristics of the Company's Marketing:
Intangibility: Although the company offers the tangible goods, it also increased the intangible value of the product by organizing the Summit Club with over 1 million members.
Inseparability: The purchase of the product is in connection to the unique online experience through the e-marketing and corporate websites and the social media, the e-marketing website offers a customer review tab. However, it can be surprising that the company, planning to expand its staff to over 2,000 employees, has no chat, direct phone line and translation to the languages different than English.
Heterogeneity: Easiness to achieve standardization and quality control in goods and services. The company does not highlight the use of equipment and technology to promote quality.
Perishability: Company does offer a 50% winter sale-off the original price. However, the company does not provide an additional discount to the products from the last season (Lovelock 2004).
2) The Problem Area of Kathmandu NZ.
Performance Objectives & Purpose of Operation.
The company has the long-term objective "to become a leading global brand in the outdoor travel and adventure market,"(Investor Centre 2014). According to Deutsche Post DHL Group on YouTube (2014), companies globally interchange with each other not only through the trade flows but also through the information capital and people flows. The global world today is different because:
The World is at the level of globalization it was before the crisis broke out.
Emerging economies are playing a part in the global connectedness.
There is the reverse of the trend of regionalization, as the flows are traveling the longer distances (Deutsche Post DHL 2014).
The Four Vs analysis gives an insight into the company weather is should manage the business as before or needs a change.
Volume: The Product Mix of Kathmandu NZ in 2016 includes the packing bags, camping goods, sleeping gear, etc. The company is capable of increasing supplies of these goods in a short time. The introduction of the new services requires time for training. The Company needs to establish the closer contact with the customers through the chat and the direct phone line.
Variety: The Company has tree product lines, targeting its goods to the three categories of customers: men, women, kids; and a "product range from the experienced adventurer to the entry-level explorer" (Investor Centre 2014). As the company is on the low side of variety scale, the unit cost will be minimum because of the experience and standardization process. At the same time, the company will be less flexible with the limited variety of sports goods.
Variability: According to the Company's annual report, the profit has slightly decreased from $44,174,000 in 2013 to $42,152,000 in 2014 (Investor Centre 2014). This tendency developed further in 2014-2015 and revenue "dropped 53 per cent to $20 million in 2014/15, as sales in Christmas and Easter proved disappointing, and costs rose" (NZ City 2015). Therefore, the first reason of variability is the seasonal character, the second inefficiencies due to the partial utilization of resources in a low season.
Visibility: According to Majestic.com, the company's has a low trust flow 24% and between moderate and low 42% citation flow of the website http://www.kathmandu.co.uk/ (Majestic 2015). Despite the different campaigns, the company has the low link to social responsibility websites, participation in the governmental initiatives, social, political, sports and environmental activities. The trust flow is crucial for the visibility because an increase in only one time in trust flow can increase up to three times inflow in the visitors.
Causes of the Problem:
The obstacles are the barriers to the company's global growth through e-commerce. Currently, Kathmandu NZ operates in the most connected regions of the world England, New Zeeland and Australia. Company can deliver goods to more than 40 countries globally, needs enhancements to accelerate an entry into the global markets.
The better connectedness will not return the immediate growth however can facilitate an availability of the company goods in different corners of the world. Translation of the website into different languages would improve the relevance of the company products to the wider customers.
The company can enrich the product range of its goods for the experienced adventurer to the products should be popular in the developing world.
The company differentiates its goods from the competitor's though the energized name and product line of the products for sports and adventure keeping the price high. This strategy is good for the developed countries. According to Porter, there is another generic strategy – the low-cost focus strategy. This strategy can be better feet to the demand of the growing global market.
Factors Causing the Problem.
The following are the factors which causing the problem:
The company receives 95% of its revenues from the regional markets with the low people flow.
The company has more than 150 shops offering the goods with the seasonal demand and 2,000 employees serving the sales. At least half of their time the employees are working not efficiently.
High cost of the products. ‘Combilock 4 Dial’ at a regular price £ 6.99 on http://www.kathmandu.co.uk/packs-and-bags/combilock-4-dial-citrus.html and the similar product on Amazon http://www.amazon.co.uk/dp/B0159RNWRQ?psc=1 cost only £ 3.34.
Product range with the limited goods and price selection.
The little relevance of the products in the developing countries.
Low 'trust flow' of the website and low visibility.
Brand has a moderate strength and low brand stature with the unrealized potential because of the high differentiation, low relevance, low esteem and low knowledge of the brand (BAV Consulting 2015).
Company’s efforts to meet the demand of the regional marked were not timely; cannot coincide with the growing international demand. The place of meeting to buy and discuss the goods moves from shop to the Internet. The company requires the different type of strategy rather than further differentiation strategy and expansion to the in the UK and European markets (Investor Centre 2014, p.11). The drop in revenues is a symptom that the company should introduce the change.
3) The Root Causes of the Problem: Key Objectives of the Operation.
The Root Cause:
The causes of the over 50% decrease in revenues can be:
Not optimized sales model through the shops.
High costs in the existing store network and on the net.
Low investments into the R&D of the distinctive products.
Low impact of the social initiatives.
Low digital awareness of the product.
Of these causes, the first three have caused failure due to the inefficient logical decisions within the framework of the hard system model (HSM). The Company is planning the strategy for the growth of shareholder value over the long term to achieve the key long-term performance metrics, evolving growth strategy and share price growth on the one hand. On the contrary high cost of the goods and on-going objective to deliver value to the company's shareholders (Investor Centre 2014) which are HSM's accommodation between conflicting interests. The latter two underline a domain of the soft system model and lacking decisions related to the global cultural awareness (Zhang 2010). However, in the long-term perspective and according to the Paretto principle, only the last cause is likely to be the root-cause making 80% effect to the future loss. At the same time, the company needs investing only 20% of the total to eliminate this problem.
The Key Objectives of the Operation:
Assumed the company has defined the low-cost strategy, it should identify the operational performance objectives:
Quality Performance Objective: The quality, in addition to meeting the requirements of the specifications, should meet the expectations of the customers in the developing countries. Company can increase the intercultural understanding through the new products and culture by developing the new product features targeted in different languages.
Speed Performance Objective: Speed is critical for the company in a way how fast company can identify the new expectations of the different categories of customers to develop the new products.
Dependability Performance Objective: Products’ global delivery depends on an availability of the warehoused in the different parts of the world or just-in-time delivery system.
Flexibility Performance Objective. Partnership with the other global partners to turn the trade flows into the capital flows, the small variety of the goods into the wide range of the goods and services.
Costs Performance Objective. To Increase sales through internet from 5% in 2014 to 20% in 2020.
These objectives do not accommodate the conflicting interests can improve the company’s performance in the short and the long-term perspectives.
4) Planning: The Preventive and Corrective Actions.
As the company generated the low revenue, it needs the corrective actions to eliminate the short-term consequences of the loss. The preventive measures can eliminate the root causes of the problem and prevent the recurrence of the problem in the future.
The corrective actions will need taking the following steps:
Optimization of the sales model through the chain.
Decreasing cost of the goods.
Investments into the R&D of the distinctive products.
Promoting the brand through the social initiatives.
The preventive action should eliminate the problem and the causes of the problem. The preventive action directed to increase the digital awareness of the product.
The flow chart (Chart 1) can describe this action:
According to the Flowchart 1, the Company is raising an awareness of the product in the emerging markets. Although little attention to R&D is not the key cause, the continuous development will not be possible without the development of the new products. Moreover, the company has the necessary experience and can scale this knowledge to different cultural environments to make the products more relevant to the brand.
The next step will be in building the brand esteem. The key is in reaching esteem through the excellent quality and purchase, post-purchase services and the return policies. The other element is the company's sustainability. The company is relentlessly improving, and innovating can develop esteem from the customers beneficial to its brand (Hammer 2004, p. 93).
The last step in branding the sports goods and the goods for truism is development of the knowledge of the brand, the example is the well-known brand of sportswear Nike.
Chart 1: E-commerce Planning Flowchart: Kathmandu NZ.
Steps to introduce change to transform organization can be difficult because of the team’s resentment. Kotter recommended changing organization in eight steps:
1) Establishing a Sense of Urgency – interaction with the team.
2) Forming a Powerful Guiding Coalition – building the executive team.
3) Creating Vision – long-term perspective that can direct.
4) Communicating the Vision – use the multiple media and assistance of the guiding coalition.
5) Empowering Others to Act on the Vision – remove obstacles and encourage the creativity.
6) Planning and Creating Short-Term Wins – noticing and encouraging the wins.
7) Consolidating Improvement and Producing Still More Change – continuously facilitating the work of the team.
8) Institutionalizing New – ensure the succession of the changes (Kotter 2007, p.99).
Cost/Benefit Analysis: Tangible and Intangible Benefits.
According to cost-benefit analysis, the ‘Alternative One’ would offer the tangible benefit of $ 2 million at the end of the five years period. The ‘Alternative Two’ would generate the benefit of 4.65 million in five years. In addition, the alternative one has the short-term, lasting effect, but the alternative 2 has the long lasting effect and higher relevance in the future.
5) Checking Effectiveness of the Problem Resolution.
The Company should ensure that elimination of the main causes of the problem. The benchmarking information is the cost of share price $2.68 in 2014 and $1.75 in 2015. The other indicator is the company's revenue $44,174,000 in 2013 to $42,152,000 in 2014 (Investor Centre 2014) plummeted even further down at more than 50% in 2015. If the measures did not return the expected result, the company should implement the new study, identify the real problems, and analyze them again. The company should document all the measures taken independently of the result.
6) Implementing the New Process as Standard.
IF the preventive action has improved the performance of the Kathmandu NZ, the company should make this result permanent. The company should replicate the successful measures within the new standard. The company should make the new standard permanent even further through the training process. The new standard should establish the new relationships within the framework of four vital activities: marketing, finance, operations, and people. At this step, company should ‘reimagine the process’ (Hammer 2004) by answering to the questions:
What a result - increased market share, revenue, and cost per share. Benchmarking to the competitor Briscoe Group Limited.
Who performs the work - One person serves all the aspects of the order: from communication with the prospect to the post purchase interaction.
Where the work performed - Where the storehouses located globally, which destination company can serve.
When the work performed - The office can serve the orders 24/7.
Whether the work performed - Some categories of good shall have delivery from the storehouses. To cut the delivery time, most goods delivered directly from the manufacturer.
What information the work employs - Reduction of inventory through the just-in-time (JIT) delivery.
How thoroughly the work is performed - The high level of services exceeding the expectations of the clients.
7) Future Actions.
The company should assign the officer responsible for the monitoring of the preventive measures. In the competitive market, the new problems may arise soon. Only the company with the team culture can face a challenge and take the innovative decisions in a short term. Therefore, the company should be alert and ready to innovation. According to Hammer (2004, p.92), “companies should strive to make operational innovation not an extraordinary project but a way of life.” The company, which is constantly revising its decisions in the light of the innovations, can lead the business and dictate the new market condition to the competitors.
The formula of success for the Kathmandu NZ can be in planning a change with respect of the long-term perspective. Developing countries generated 30% of the World's GDP in 2000 in 2050 this estimates will be reversed (Berdan 2015). The other component of the long-term success is in the nurturing team, and creating the inimitable organization culture to scale the experience into the multicultural environment. In the short-term, the company should establish the new team to introduce change, to manage change and train the team. This balanced formula will look as follows: long term (expansion through the e-commerce website + creating new organizational culture) = short term (continuous R&D process + innovation + new team + coaching).
BAV Consulting 2016, Explore your Brand: Branasset Valuator. [Online]. Available from: <http://bavconsulting.com/apps/> [04 January 2016].
Berdan S 2015, Go Global! [Online]. Available from: <https://www.youtube.com/watch?v=Xr_SAWV3Ozs/> [05 January 2016].
Hammer, M 2004, 'Deep Change', Harvard Business Review, 82, 4, pp. 84-93, Business Source Complete, EBSCOhost, viewed 4 January 2016.
Kathmandu 2015, Home Page. [Online]. Available from: <http://www.kathmandu.co.uk/get-to-know-us/our-story> [04 January 2016].
Kathmandu 2014, Kathmandu Opens 150th Store. [Online]. Available from: <http://www.kathmandu.co.uk/get-to-know-us/company-news/kathmandu-opens-150th-store
> [04 January 2016].
Lovelock, C. & Gummesson, E. 2004, "Whither Services Marketing? In Search of a New Paradigm and Fresh Perspectives", Journal of Service Research: JSR, vol. 7, no. 1, pp. 20-41.
Investor Centre 2014, About US. [Online]. Available from: <http://www.kathmanduholdings.com/about-us/products/> [04 January 2016].
Investor Centre 2014, Annual Report 2014. [Online]. Available from: <http://www.kathmanduholdings.com/wp-content/uploads/2014/10/Kathmandu-AR-2014.pdf [04 January 2016].
Kotter, JP 2007, 'Leading Change: Why Transformation Efforts Fail', Harvard Business Review, 85, 1, pp. 96-103, Business Source Complete, EBSCOhost, viewed 4 January 2016.
NZ City 2015, Kathmandu rejects $360m takeover, Wellington. [Online]. Available from: <http://home.nzcity.co.nz/news/article.aspx?id=211096> [04 January 2016].
Majestic 2015, Summary. [Online]. Available from: <https://majestic.com> [04 January 2016].
Deutsche Post DHL Group 2014, DHL Global Connectedness Index 2014: Where does globalization stand today? [Online]. Available from: <https://youtu.be/9suOHQKcUeo> [04 January 2016].
Zhang, H 2010, 'Soft systems methodology and ‘soft’ philosophy of science', Systems Research & Behavioral Science, 27, 2, pp. 156-170, Business Source Complete, EBSCOhost, viewed 26 December 2015.