Situation Analysis
A situation analysis is a review of past and present data that summarizes the organization’s current circumstances and tries to identify trends, forces and market conditions that might that might affect organization’s future prospects. This involves analyzing both internal and external factors. Here is the situation analysis of SpainSko, S.L. that will help to identify the organization’s future situation.
Internal Factors
There are two categories of internal factors. These are performance and strategic options.
Performance[/u]
For analyzing the performance of SpainSko factors like profitability, market share and production costs has been considered.
Profitability: When Gonzalo and Pilar Goyes started the family business, they forecasted that 10 million of investment would be necessary as fund for their new venture to reach break even. After the eight months of business they had invested seven million pesetas, which was seventy percent of total investment. Despite of this huge investment, at the end of December 1994 the contribution margin was not sufficient. It was only 1,484,681 ptas. It happened mainly due to high cost of sales (1,292,234 ptas) and other expenses (4,908,516 ptas). As a result, there was no profit. SpainSko incurred a loss of about 4,395,181 ptas. [Exibit 4: Profit and loss statement]
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Production Costs: Sales of Dansko shoes in other European countries showed that one third of retail price of each pair of shoes went on paying the manufacturers cost, one third spent on advertising and the rest covered the distributors overhead expenses and profits. On an average the price of Dansko shoes are 18,000 ptas, so the production cost will be around 6,000 ptas.
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New product plan: When the company Dansko started in 1960, it started to design and manufacture children’s shoes, which was prompted by a Danish physiotherapist who was looking for a pair of shoes with the right anatomical shape that would allow his children’s feet to develop properly. From the studies of footwear of children, they realized that it would be possible to use the same concept for fully developed feet. Thus they started manufacturing basic, functional, anatomical shoes for adults. In 1994, the leather for the shoes was selected and imported from Spain, cured in Denmark, sent to Poland for hand sewn and then returned to Denmark to stuck the sole and for sale. Dansko’s product range was quite wide. There are about forty different models of shoes and sandals in a variety of basic shoe color. Other then that they do not have any plan for introducing new model of shoes or any other product.
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Strategic Options[/u]
For analyzing the strategic options of SpainSko, financial resources, problems with current strategies and other strength and weaknesses have been taken into account.
Financial Resources: At the end of December 1994 SpainSko had a fixed asset of about 1,923,612 ptas and working assets about 1,533,425 ptas. SpainSko had made a capital investment of 7,250,000 ptas and the equity was 2,854,819 ptas. They had made significant investment in stocks (862,533 ptas) and advertising (2,841,878 ptas). When they started the business they originally estimated that it would cost them 10,000,000 ptas to reach the break even. A year after the company had been set up and after eight months of activity they found that as they were closing towards the limit, reaching the break even was a dream to them. Although in their income statement they have not included the salaries and wages, due to their high cost of sales (1,292,234 ptas) and other expenses (4,908,516 ptas) they had incurred a significant loss that was 4,395,181 ptas. [Exibit 4: Profit and loss statement]
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Problems with Current Strategies: SpainSko imported Dansko shoes and then distributed them to public using direct marketing method. These shoes were not sold in the traditional shoe shops. They were offered to groups of potential customers, such as religious orders, pharmacists, diabetics, naturist association, etc., through direct mailings or via inserts in magazines. Dansko shoes followed the concept of “comfort shoes”. They were not orthopedic, but simply aimed to allow the feet to work properly. The designed sacrificed aesthetic appearance in the interest of greater comfort. So for “comfort shoe” like Dansko, using only direct marketing is not effective because people need to know whether the shoes are really as comfortable as the ads say and also whether they are actually as well finished as they look. It was also apparent that only 5 percent of customers read the information and the instructions in the ad leaflets properly.
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Other Strength and Weaknesses:
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o Feature of the shoe: The feature of the Dansko shoe can be both strength and weakness. Dansko shoe introduced the concept of “comfort shoe” that is the fundamental feature of Dansko shoes. The Spanish market was more becoming focused on the medium-high range, with more importance given to comfort and durability. The Dansko shoes are manufactured to very high quality standards and their durability makes them very economical. They are anatomical, waterproof, flexible, made of leather, authentic moccasins and recyclable.
On the other hand, the design of the Dansko shoes sacrificed aesthetic appearance in the interest of greater comfort. The fashion factor was more important in Spain than any other countries in Europe.
o Sales System: The sale process began by mailing the advertising leaflets to selected names and addresses or by inserting the same leaflets in selected publications. People who were interested in the product were invited to place the order by returning the reply coupon properly completed with their personal details and the size and style required. The payment had to be made in advance, when the order was placed. The payment in advance avoided the problem of non-payment. SpainSko agreed to change the style color or size as many times as necessary until the customer was satisfied. The shoes were sent out to the customers using a courier service as the Spanish system was not reliable enough. As the shoes were not available in the shops, the option of trying the shoes at home was also offered and could be requested on the order form. The whole process of sale is lengthy and time-consuming. As a result the cost of sale becomes high (1,292,234 ptas).
External Factors
In analyzing the external factors of SpainSko elements such as customers, competitors, industry and economy has been discussed.
Customers: When SpainSko started its business in Spain their plan was to get information about people who had previously bought Dansko shoes. The customer loyalty was very high in Europe and is the key to succeed in marketing a product. So the chances of customers making the purchase again were very good. Because of the feature of the Dansko shoes, Gonzalo, the importer of Dansko shoes himself remained a loyal customer of the brand for twenty years. And the letter from Alfred Frank, the owner of Dansko states that Dansko customers are not particularly price sensitive. The customers in Spain of Dansko shoes were family and friends of Goyes family, chiropodist, religious institutions, pharmacists and Association of Diabetics of Catalonia (ADC).
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Competitors: Before SpainSko started its business in Spain they carried out a market study and found that there was only one brand of comfort shoe in Spanish market for two years: Birkenstock. In addition, there were other brands in Spanish market. They were not precisely “comfort shoes”. These shoes were more comfortable than most and were aesthetically more “normal”. They are sold in retail outlets (pharmacists and shoe shops). The competition in this category was broadly made up of three brands. These are Mephisto, Clarks & Scholl and Bally. Mephisto is easy to find and similarly priced as Dansko. Clarks& Scholl is a little cheaper than Mephisto but more difficult to find. The range is wider and the design is more classic. Bally is sold only in top-class shoe shops and at higher prices than Dansko. They are very classical dress shoe.
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Industry: In 1992, Spain was one of the largest manufacturers of footwear in EEC. The average quality of footwear is as high as Dansko. For this reason, the shoe manufactured in Spain was not expensive on average. In 1989, 186.3 million pairs shoes had been manufactured in Spain. The shoe manufacturers were small companies and formed a very fragmented sector, with the 4 percent of manufacturers having some international presence. Spain was one of the main footwear exporting countries, particularly in higher price points. In 1989, the trade balance had been the following:
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Exports from Spain 128,738,000,000 ptas
Import from Spain 15, 001,000,000 ptas
Balance 113,737,000,000 ptas
The shoe sector was in difficulty and many manufacturers were going under. With regards to distribution systems, there were no large chain shops specialized in shoe retail, and the value chain was basically as follows:
1. Retailers usually had a gross margin of 50 percent of the retail price.
2. Wholesalers and the sale representatives had a gross margin of around 13 percent of the retail price.
3. Manufacturers got about 37 percent of the retail price.
Economy: In Spain Peseta was depreciating, which in December 1994 reached 88 ptas/DM. As a result the cost structure in Spain for Dansko shoe was different. Almost 50 percent of retail price went on import costs, while the other 50 percent did not even covered the advertising expenses.
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Market trend: Fashion factor was more important in Spain than any other country in Europe that had more functional tendencies. Sports shoes were getting familiar over dress shoes, and the changing seasons well reflected in sales. Demand in Spanish market was very seasonal. It was becoming more focused on the medium high range, with more importance given to comfort and solidity. The demand for shoes did not increase with the level of income. The purchase of shoes per capita in Spain (3.2 pairs a year) was one of the lowest in Europe (average of 4.2 pairs a year). This is due to the mild weather in the country and to the lower level of income. Women bought more pairs of shoes per year than men, although in lower unitary value. Brands were becoming more important. Sales through retail stores with exclusive brands were going up.
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Strengths:
Dansko shoe introduced the concept of comfort shoe” that is the fundamental feature of Dansko shoes. It focuses on comfort and durability. They are anatomical, waterproof, flexible, made of leather, authentic moccasins and recyclable.
The Dansko shoes are manufactured to very high quality standards and its durability makes it very economical.
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The range of Dansko’s product is wide. There are about forty different models of shoes and sandals in a variety of basic shoe color (black, brown, navy blue, beige, etc.
While placing the order the payment had to be made in advance through sending checks, VISA number or proof of a bank transfer. In the sale system of SpainSko, as the payment is made in advance, it helped them to avoid the problem of non-payment.
In their sales system the customer had to choose the style and size from the leaflet. It included a scale of shoe sizes and foot measurements. As a result the number of changes due to wrong sizes was very low.
For delivery of shoe to the customer SpainSko uses courier service that was reliable and it took less than twenty-four hours to reach the destination.
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Weaknesses:
The design of the Dansko shoes sacrificed aesthetic look in the interest of greater comfort.
The sale process began from mailing the advertising leaflets to sending the shoes to customers through courier service. As the shoes were not available in the shops, the option of trying the shoes at home was also offered and could be requested on the order form. The whole process of sale is extensive and time-consuming. It makes the cost of sales high.
SpainSko followed the strategy of applying direct marketing only. For a comfort shoe like Dansko without any aesthetic appearance using only direct marketing might not be effective. The shoes were not sold in the traditional shoe shops. People might like to try the shoe to see whether it is really comfortable before they want to order them.
Spainsko had already spent 70 percent of their resources and facing a significant loss. They have equity about 2,854,819 ptas.
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Opportunity:
The customer loyalty was very high in Europe. So the chances of customers making the purchase again were very good.
Dansko customers in Europe are not usually price sensitive.
There was only one brand of comfort shoe in Spanish market, Birkenstock. There were other brands in Spanish market but they were not precisely “comfort shoes”. So, the competition for comfort shoe is not that high in Spanish market.
The Spanish market was becoming more focused on the medium high range, with more importance given to comfort and durability of shoes.
Brand of shoes were becoming more important in the Spanish market.
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Threats:
There were other brands in Spanish market beside Birkenstock. These are Mephisto, Clarks & Scholl and Bally. They were not precisely “comfort shoes”. These shoes were more comfortable than most and were aesthetically more “normal” than Dansko. They are sold in retail outlets. The range these shoes are wider and the design is more classic.
In Spain Peseta was depreciating, which in December 1994 reached 88 ptas/DM. As a result the cost of importing shoes were high.
Fashion factor was more important in Spain than any other country in Europe that had more functional tendencies.
The demand for shoes did not increase with the level of income.
Due to the mild weather in the country and to the lower level of income, the purchase of shoes per capita in Spain (3.2 pairs a year) was one of the lowest in Europe (average of 4.2 pairs a year).
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SpainSko targeted their friends and family, pharmacists, religious orders, chiropodists and association of Diabetics of Catalonia (ADC) for advertising and selling Dansko shoes. Dansko shoes are for people who are looking for comfort and satisfaction. In their advertisement leaflets it is said that Dansko shoes are particularly for people who are past the stage of wearing sneakers at weekends, for football fans who claim to be sufferers (or not) at matches, for those who travel, visit trade fairs, or whose hobbies are walking and standing in cold or water, for older people whose feet ache, diabetes, those who suffer from high levels of uric acid, or who are just up to date ecology and natural health.
Marketing objective defines the targets for marketing performance, usually in terms of sales, together with financial measures such as profitability. Marketing objectives are a set of lower level objectives to support the organizational objectives.
The objective of SpainSko was to reach the break even. Initially they forecasted that it would cost them ten million to reach the break-even. Although they have invested 70 percent of it, they were far behind reaching the break-even point. To achieve the organizational objective, they should have effective marketing objectives that should meet four criteria:
§ They are relevant to the high level objectives.
§ They are challenging but still attainable.
§ They are measurable.
§ They are time specific.
SpainSko had so far had an income from sales of about 2,776,915 ptas in the year1994 by investing capital of 7,250,000 ptas. They should set a sales target that is 40 percent more than the present sales in the next 12 months. As a result the income from sales will increase approximately 4million ptas. It will help SpainSko to reach near the break-even.
So far what SpainSko did to promote Dansko shoes that they advertised through sending leaflets and inserts to their potential customers and distributed them using direct marketing method. But the response was very low. There are number of options that SpainSko can undertake to promote their product in Spain.
SpainSko can go for professional advertisement to physiotherapists, physical education teachers, etc who can recommend DanSko shoes to their clients. For that they can offer special commission to them for recommending Dansko shoes.
They can set up their own exclusive retail store or attend trade fair, so that people can actually be aware of the brand and people can actually try on the shoes to see whether they are really comfortable before buying it. It will help them to create public relation.
They can offer many seasonal sales promotions to their customers, because changing seasons are well reflected in Spain’s shoe market.
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Advertising Objective
Advertising objectives are the desired end results of an advertising campaign. The objective of their ads should focus on:
Creating awareness and preference among the target audience.
Prompt buyers to take initiatives to buy SpainSko shoes.
Creating a new perception about Dansko shoes.
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To achieve these results, the advertisements should --
Prompt people to take direct action: SpainSko can offer seasonal sales discount, coupon for a certain period of time to prompt people to take direct action.
Encourage information search: The ads can encourage people for more information search about Dansko shoes by giving their contact number or e-mail address, websites in the advertisement leaflets. It will help the target audience to know more about the brand.
Relate product to needs: The ads has to be communicable to people, so that people can relate the shoes with their needs. For comfort shoes like Dansko the ads should focus on peoples who need for the shoes for walking and standing for time or people who suffer from foot ache.
Encourage recall to past satisfaction and prompt reorders: SpainSko can focus on the existing customers in Spain and the ads can remind them about their past experience of wearing DansKo shoes.
Modify attitudes: Although Dansko shoes are high quality, durable and comfortable products, but they lack the aesthetic appearance. So the people might have the idea that Dansko shoes are not fashionable shoes. The ads can modify the attitude of people and create a new perception about Dansko shoes by saying that the fashion is moving towards the natural, comfortable products as they maintain the proper shape of feet.
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How advertising objectives are helping people to achieve Marketing objective?
SpainSko’s marketing objective is to increase there sales of Dansko shoes by 40 percent in the next 12 months. All the advertising objectives can help SpainSko to achieve the marketing objective.
By prompting people to take direct action by offering seasonal sales discount can increase the sales of Dansko shoes for a certain period of time in the year.
The ads can persuade people for searching information about the product that can create awareness and preference about the brand. As a result people can end up buying the product from several options available in the market.
By relating product to needs, can create want for the product. The consequence can be an increase in sales as people buy the product to satisfy their wants.
By encouraging people to recall their past satisfaction of Dansko shoes can remind people about the comfort that they had before while wearing the shoes. It can prompt the brand loyal consumers to buy the shoes again, which can results in increase in sale.
Modifying the attitudes towards the product and creating a positive perception about Dansko shoes can bring a significant increase in sales of the product.
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