STRATEGIC MARKETING
Table of Contents
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EXECUTIVE SUMMARY Diesel, one of the leading brand names in denim wear had constantly created viral marketing campaigns due to its surreal advertisement content such as “Be Stupid”. Yet, the promotional effort is effective in pooling a group of niche market segments that embrace individualism and rebellion. Viewing this as an opportunity, Diesel related its brand values with lifestyle concerns such as obesity, violence, and many others that young adults face in their everyday life.
The brand’s product line consists of 3 types: Diesel, Diesel Kid, and Diesel Black Gold. These product lines are able to cater to consumers of different ages and income range, aiding the brand in expanding its market exposure. Despite its strong brand positioning, the product lines remain homogenous against its competitors such as Levi’s, Replay, and Pepe Jeans. In addition, the external environment in UK may not be favourable in terms of the possibility of a rate hike and ‘Brexit’, both of which could affect businesses and consumers’ spending power. Therefore, Diesel should focus on franchising to more retailers in Asia, which could aid with offsetting losses in Europe and American through gains in the territory. E-commerce platform is another alternative for Diesel to communicate its brand values to potential market segments in Asia that are more inclined towards collectivism behaviours.
Nevertheless, this strategic marketing plan should be monitored for any shifts in the external environment, in order to ensure that Diesel retains its competitive advantage.
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Corporate Activities Headquartered in Italy, Diesel S.p.A (‘Diesel’) is a retail clothing company that sells denim as its unique selling proposition, but incrementally branched out to other clothing and accessories. Currently, the brand has two product lines known as: Diesel and Diesel Black Gold (Diesel, 2016). Alternatively, it offers clothing for kids under the brand name Diesel Kid. Fundamentally, Diesel’s denim clothing are produced exclusively in Italy, while the remaining product lines are outsourced to local and foreign manufacturing companies (Diesel, 2016).
In 1976, the company’s founder, Rosso utilised a loan from his father to purchase a 40% holding in the clothing manufacturing company that he was working in (Moltex), later changing the brand name to Diesel. Later on during year 1985, Rosso purchased the remaining interest from his partner at US$500,000 to become the sole owner of Diesel (Diesel, 2016).
In year 1990, Diesel offered Russ Togs Inc. and Mitsubishi Co. with licenses to market and distributed the company’s product lines in United States (‘US’) and
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Mexico, and Japan respectively (Diesel, 2016). Yet, its American licensee Russ Togs Inc. suffered from worsening sales and ended up selling Diesel Sportswear to Rosso at the expiration of the licensing deal. As a result of Russ Togs Inc.’s failure, the strategy to create ‘Made in US’ Diesel products became obsolete (Diesel, 2016). Therefore, the company began selling its ‘Made in Italy’ Diesel products in American stores. To further expand outside of Italy, Diesel established its first significant retail fashion website that comprised of images of each of its collections. Nevertheless, in 1996, the company continued to progress with the trend by opening flagship retail stores (also known as Diesel Style Labs) throughout various notable locations such as New York City, San Francisco, Rome, London, Berlin, Barcelona, and Paris (Diesel, 2016). Other than that, it developed mono-brand stores for the company to strengthen its point of sales in department stores and other multi-brand retail stores.
Year 2002 saw Rosso making acquisitions of fashion companies under the parent company, Only The Brave where Diesel was positioned as a subsidiary as well; other subsidiaries include Maison Martin Margiela, Viktor & Rolf, Marni, and licensing company Staff International (Diesel, 2016). As of 2008, the company had 5,000 point of sales across 8 countries with 270 mono-brand Diesel stores. Among these stores, Diesel directly owned 170 of them while the remaining stores were owned by franchisees (Spender, 2014). 5
Mission Statement “To create an apparel line perfect for individual people who follow their own unique path in life and for those style-makers who express their individuality by the way they dress�
-Diesel (2015)
With reference to the above mission statement, the company’s unique selling proposition is to allow consumers to dress based on their individual preferences. As a result, Diesel supports the idea that every ordinary individual is capable of dressing uniquely and still becoming a part of a lifestyle community (Diesel, 2016). Hence, it is vital to note that Diesel does not recruit models to endorse its promotional campaigns, rather it hires ordinary individuals as shown in Appendix 1.
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Brand Value Unlike other conventional fashion brands in the industry, Diesel innovated its marketing approach using a ‘humorous’ and ‘ironic’ tone in communicating a message to its target consumers (Sigalas et al., 2013). The brand does not merely sell clothes for profit, but it enriches consumers with a lifestyle experience; for instance, Diesel uses aging, obesity, violence, and religion in its marketing campaigns for audiences of ages 16-30 with the idea of storytelling. Thus, it can be recognised that the company is associating its values with more intelligent and articulate consumers who purchase lifestyle rather than solely on fashion trend (Sigalas et al., 2013). Figure 1 below is a brief summary of Diesel’s brand onion:
Figure 1: Diesel’s Brand Onion
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As can be observed in the brand onion, Diesel aims to introduce customers to a new and experimental experience. To achieve this goal, the brand incorporated that the premium price for Diesel products are not attributed to the premium quality that is already present. However, the high price is the result of the carefree and fun lifestyle experience that is shared by Diesel in its marketing campaigns.
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Segmentation, Targeting, and Positioning Model Brand Positioning In relation to Brand Value, this segment would focus on Diesel’s price level and brand awareness in comparison to its denim competitors such as Levi’s, Replay, and Pepe Jeans in Figure 2.
Figure 2: Positioning Map The diagram above demonstrates that Diesel had successfully gained a position at the top of consumers’ minds due to its viral marketing campaigns such as “Be Stupid” (Diesel, 2016). Its viral marketing campaigns were also attributed to the technology’s role in facilitating the ease in sharing images, videos, and comments in Youtube, Instagram, Facebook, and other social media channels (Posner, 2011). However, competitors like Levi’s and Replay are successful in their own ways, where new ‘cuts’ in jeans were developed to fit diverse range of consumers’ body sizes. Therefore, these brands’ innovation in product development allowed them to sell the products at 9
a similar price levels to Diesel. Still, Levi’s and Replay lack brand personality as compared to Diesel’s rebellious and provocative messages and images that accompany its brand name (Quack, 2008).
Pepe Jeans, a British-based company had been able to gain attention from consumers of ages 1830 (Posner, 2011). Nevertheless, the brand may pose little threat as compared to Levi’s and Replay due to its low involvement in marketing campaigns. Nevertheless, Diesel should monitor Pepe Jeans’ association with being British-made products, as many tourists and foreign consumers would identify that value as a distinctive selling point (Quack, 2008).
Consumer Segmentation & Targeting
Market Segment A (Target Market) 10
Diesel’s primary market segment has ages ranging from 20-35 years old. This is the group of consumers who embrace the brand’s rebellious nature and becomes advocates of the brand’s values. As their income can range from low to high-income classes, they are able to purchase products from Diesel, Diesel Kid, and Diesel Black Gold. Furthermore, this group of consumers would often visit Diesel’s retail stores to meet with like-minded individuals, building a sense of community.
Market Segment B (Fashion-oriented) Also of similar age range as Diesel’s target market, these fashion-oriented individuals may not often engage in repeat purchases. They are more focused on keeping up with the fashion trend, which would sometimes include Diesel’s urban and rebellious nature. However, as these group of consumers are fashion-oriented, they are more willing to spend on items that they believe are good value for money. Therefore, with similar income range with the target market, a one-off transaction from market segment B may be of higher profit sales than the ones by market segment A.
Customer Pen Portrait
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Target Customer: Rebellious, carefree, young, individualistic Gender: Mostly male Age: 20-35 years old Income Level: Low to high Position: Outdoors sports athletes, artists, students, and musicians Lifestyle: Do not adapt to mainstream fashion trend, bikers, adventurous, seeks fun and vacation breaks Also buying: Levi’s and Replay
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Current Marketing Mix Product In addition to Diesel’s distinctive apparel item that is denim wear; the brand had developed its product line into other forms of clothing such as leather jackets and women’s dresses. Diesel Black Gold is the luxury ready-to-wear line that was launched in 2008, contradicting its norm product line known as Diesel (Diesel, 2016). Other than developing its own products, Diesel is constantly collaborating with the likes of Adidas and Ducati to create a new sporty product line and helmets respectively as shown in Figure 3 below.
Figure 3: Products made in collaborations As can be observed, the brands that Diesel collaborate with have values that are similar to the company; for instance, Ducati positions itself as offering fun and rebellious customer experience in terms of its sports bikes, leather jackets, and helmets (Diesel, 2016). While for Adidas, the brand embeds young, fun, and carefree values within consumers.
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Price With a few and concentrated product lines, Diesel’s business is streamlined and capable of operating efficiently. Therefore, as shown in Figure 4, prices for its Diesel, Diesel Kid, and accessories are in the competitive range. In addition to that, the competitive prices are attributed to its strategy to outsource the production to local or foreign companies with strict supervision in order to maintain the consistency of its product quality (Porter and Kramer, 2011). This price range allows Diesel to compete in the mass market of the fashion industry where economies of scale can be achieved.
Once Diesel is successful in reaching out to its target market in the public, marketing campaigns that embed the brand values would prove to be more effective in retaining a loyal customer base. Other than repeat purchases, loyal customers would be more inclined to purchasing premium products such as Diesel Black Gold where jeans would cost a minimum of above £200 (Panda, 2014). Therefore, the balance between selling low volume of premium products and high volume of average-priced products would aid in offsetting any declines in either market segments. This is because the fashion industry can be threatened by the happenings in the economy, where clothing remains to be a small percentage of middle-income consumers’ disposable income (Porter and Kramer, 2006).
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Diesel Black Gold – Clothing and denim above £200
Diesel & Diesel Kid – Clothing and denim ranging £50-£150
Figure 4: Price Architecture Diesel accessories – Sunglasses, belts, wallets, etc. ranging from £50-£150
Promotion As previously mentioned, Diesel is well known for its surreal advertisements; as a result, the brand continues to greatly involve itself in print and television commercials as a means to create the next viral marketing campaign (Macher and Mayo, 2015). Appendix 1 is an accurate illustration of its “Be Stupid” marketing campaign that went viral. Beside that, Diesel is actively engaged in public relations activities where 15
Rosso’s 50th birthday in year 2005 was accompanied by the release of an illustrated book known as ‘Fifty’, revolving around the company’s history (Diesel, 2016). Only 10,000 of this book were produced to incorporate a ‘feel’ of being a limited edition item. Other than that, it has been attempting to expand its online operations through establishments of online stores worldwide and social media accounts to market its products while interacting with consumers as shown in Appendix 2. The consistency in its images is helpful in communicating accurate and
reliable
messages
to
consumers, contributing to the brand’s strong brand awareness (Pamell, 2010).
Place & Process Based in Italy, Diesel’s distribution channels comprise of its directly owned retail stores, franchises, and online store. Each of this distribution channels is aimed at serving various market segments’ needs. Retail stores are utilised to effectively communicate its brand values to all market segments in order to create a loyal customer base (Leitner, 2014). In addition to that, the music and store designs would further enhance Diesel’s rebellious value, which would drive consumers to feel sufficiently carefree to be individualistic rather than adapt to the public’s fashion trends (Kim and Mauborgne, 2015). However, it is a challenge for Diesel to
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micromanage
franchises
worldwide.
This
circumstance could affect Diesel’s brand image in those selected countries, disrupting with its expansion plans.
For the brand’s online stores shown in Appendix 2, it caters to individuals who are busy with work or are not keen with shopping in-store. The e-commerce platform would also serve to facilitate existing loyal customers who like to frequent browsing Diesel’s product lines (Jackson and Shaw, 2009). This circumstance would aid with driving traffic to the company’s website while utilising the platform as a means to market new products to entice existing customers for repeat purchases.
SWOT Analysis •
Strengths
One of Diesel’s primary strengths is its superior brand positioning in comparison to Levi’s, Replay, and Pepe Jeans. The creation of its own rebellious and fun culture, associated with Diesel’s denim wear is communicated effectively to consumers. As a
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result, the brand is successful in targeting a niche market of young adults that are individualistic (Helms and Nixon, 2010). To an extent, this circumstance prevents Diesel from being affected by the changes in latest fashion trends, creating a fashion environment that has a small number of players.
Another advantage Diesel has is its consecutive franchising deals by retailers worldwide. This strategy allows the parent company to save costs in expanding its operations geographically with lack of cultural understanding in selected territories; thus, Diesel would be able to focus on its core markets while making improvements on its product lines and investing in public relations and marketing campaigns (Hussler et al., 2008).
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Weaknesses
As the brand offers franchising opportunities, it is a norm for Diesel to face setbacks from retailers that do not retain the company’s product and service quality. Furthermore, managing the human resources within these retailers would defeat the purpose of franchising (Hussler et al., 2008). Therefore, Diesel would have to 18
effectively regulate the performance and standards of these retailers through written requirements and quarterly review.
Other than that, the rebellious trait embedded in Diesel may not be culturally suitable for some Asian countries (Helms and Nixon, 2010). This is because Eastern cultures commonly promote collectivistic beliefs where in-group harmony is more importance than the achievements of personal individualism. Nevertheless, the prevalence of globalisation is driving Asian individuals to study or live abroad, encouraging the transfer of Western culture to their countries (Emerson, 2003). This occurrence would pose as an opportunity for Diesel.
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Opportunities
Based on the discussion in Weaknesses, Diesel has various opportunities in sharing its individualistic values in Eastern-cultured countries. As a result of globalisation, level of acceptance of individualism may be higher, posing large potential in increasing its sales volume or franchising capabilities to Asian countries (Elkington, 1994). An alternative method to expand geographically into Asia is through it online stores. As Internet becomes more accessible to a larger proportion of Asian countries’ populations, digital advertising and online stores would aid Diesel in reducing its operational costs (Dowling et al., 2014). The higher profit margin could be used on developing its public relations activities such as hosting major fashion events annually, equivalent to that of Victoria Secret’s scale.
With further penetration of the Asian market by Diesel, discovery of new independent designers would offer the company with an opportunity for collaborations. 19
Subsequently, Diesel would be able to communicate emerging issues in Asia that could include income inequality and racial tensions in its marketing campaigns, further developing close relationships with the local consumers.
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Threats
Despite encountering minimal threat from the fashion trends set by other companies such as fast fashion brands, Zara and H&M, Diesel is still vulnerable to social factors such as peer pressure that could affect individual fashion preferences (Diesel, 2016). Moreover, behaviour and personality traits are the most difficult to influence due to the presence of social media that promotes peer pressure. Additionally, Diesel’s approach to not hiring celebrities to endorse its brands in marketing campaigns could cause the brand name to be less attractive to individuals who are keen of celebrities (Diesel, 2016). After all, media and celebrities play a huge role in many young adults’ lives through films and music.
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Porter’s 5 Forces Based on Appendix 4, Diesel faces the highest level of threat from its competitors (Levi’s, Replay, and Pepe Jeans). With similar product offerings in the denim wear, brand positioning may not be sufficient in maintaining Diesel’s competitive advantage (Crane et al., 2014). As its competitors gain economies of scale, price competition may succumb consumers to opt for products with cheaper alternative. This is because if consumers are seeking for luxury products, there are various substitutes such as Versace, Yves Saint Laurent, Givenchy, and many more (Burnes, 2009). Therefore, Diesel is also facing medium level of threat from the luxury counterparts in the fashion industry. Nevertheless, Diesel’s successful creation of a sense of community through its brand values would be able to sustain customer loyalty effectively as compared to its competitors (Burnes, 2009).
In the fashion industry, new entrants would pose little threat; this is because it requires a large amount of capital to enter the market due to well-established players. However, Diesel should constantly monitor for potential suppliers to cooperate with in the foreseeable future (Conway and Steward, 2009). This is because reliance on selected suppliers would lower the brand’s bargaining power, which would disrupt the company’s profit margin. As a result of lower profit margin, a shift towards higher buyer’s bargaining power could cause Diesel to lose its market share to rivals easily
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unless the company intends to sell its products at a loss, which would not bode well in the long-term (Conway and Steward, 2009).
Still, illustrated by Figure 5, Diesel remains to be in the growth phase in terms of industry life cycle, as the market is niche and lacks high number of competitive players. Denim wear is suitable clothing for all seasons and is considered as a product for individuals living in the urban cities (Burnes, 2009).
Figure 5: Industry Life Cycle
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PESTEL Analysis With reference to Appendix 5, Diesel in UK may encounter several challenges in the external environment. From a political perspective, the possibility of a rate hike in the near future and UK’s exit from the European Union would both disrupt with the company’s strategic direction (Brown et al., 2005). This is because any expansion plans may incur higher borrowing costs and trade tariffs would lower profit margin. Furthermore, these political decisions may affect local businesses, followed by consumers’ disposable income; this circumstance would lead to less purchases in the fashion industry because basic necessities usually takes more precedence than staying fashionable for humans (Blythe, 2006).
As mentioned previously, fast fashion brands are gaining momentum in the industry and rapidly increasing its market share. This occurrence is rendering niche markets such as Diesel’s denim wear to falter in terms of sales volume (Brown, 2011). Yet, the advancement in technology allows Diesel to expand its operations geographically in a cheaper alternative to offset losses in UK through gains in other territories. The shift towards operating online stores would aid in reduction of labour costs, where a rise in minimum wage would pose little threat to Diesel (Brown, 2011). This is because one of retailers’ most vital resources is their human resources; hence, the cost of recruitment and training would render fewer burdens towards the 23 company.
Conclusion After analysing Diesel’s current situation in the fashion industry, the brand is in a favourable position to further expand its operations into the Europe and Asian territories. This approach would foster new opportunities for the company to collaborate with and develop grow its brand values (Blythe, 2006). This is because the emphasis of Diesel on its lifestyle experience renders it important for the company to continuously update itself with current social trends in terms of mind-sets and behaviours including those of European and Asian consumers (Blythe, 2006). Nevertheless, emerging threats in the external environment may arise in the foreseeable future. Therefore, Diesel should view this strategic marketing plan as a guideline rather than a finalised solution.
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References Spender, J. C. (2014) Business Strategy: Managing uncertainty, opportunity, and enterprise. Oxford: Oxford University Press. Sigalas, C. et al. (2013) “Developing a measure of competitive advantage”. Journal of Strategy and Management 6 (4), 320-342. Quack, s. (2008) “Recombining national variety: Internationalisation strategies of American and European law firms”. Journal of Strategy and Management 5 (2), 154174. Posner, H. (2011) Marketing Fashion. London: Laurence King. Porter, M. and Kramer, M. (2011) ‘Creating shared value’. Harvard Business Review 89(1), 62-77. Porter, M. and Kramer, M. (2006) ‘Strategy and society: The link between competitive advantage and corporate social responsibility’. Harvard Business Review 84(12), 78-92. Panda, D. K. (2014) “Managerial networks and strategic orientation in SMEs: Experience from a transition economy”. Journal of Strategy and Management 7 (4), 376-397. Pamell, J. A. (2010) “Strategic clarity, business strategy, and performance”. Journal of Strategy and Management 3 (4), 304-324. Macher, J. T. and Mayo, J. W. (2015) “Influencing public policymaking: Firm, industry, and country level determinants”. Strategic Management Journal 36 (13), 2021-2038. Leitner, K. (2014) “Strategy formation in the innovation and market domain: Emergent or deliberate?” Journal of Strategy and Management 7 (4), 354-375.
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Kim, W. C. and Mauborgne, R. (2015) Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Boston: Harvard Business Review. Jackson, T. and Shaw, D. (2009) Fashion Marketing. Basingstoke: Palgrave. Hussler, C. et al. (2008) “Strategic management and the economics of the firm: How to reconcile the brother enemies?” Journal of Strategy and Management 5 (4), 372380. Helms, M. M. and Nixon, J. (2010) “Exploring SWOT analysis – where are we now?: A review of academic research from the last decade”. Journal of Strategy and Management 3 (3), 215-251. Emerson, J. (2003) ‘The blended value proposition: Integrating social and financial returns’. California Management Review 45(4), 35-51. Elkington, J. (1994) ‘Towards the sustainable corporation: Win-win-win business strategies for sustainable development’. California Management Review 36(2), 90100. Dowling, P. J., Festing, M. And Engle, A. D. (2013) International Human Resource Management. 6th ed. Hampshire: Cengage Learning EMEA. Diesel (2016) About Diesel. [online] Available at: http://global.diesel.com/aboutdiesel/article-aboutdiesel.html [Accessed 10 January 2016]. Crane, A., Matten, D. and Spence L. J. (2014) Corporate Social Responsibility: Readings and Cases in a global context. 2nd ed. Oxon: Routledge. Conway, S. And Steward, F. (2009) Managing and Shaping Innovation. New York: Oxford University Press. Burnes, B. (2009) Managing Change. 5th ed. Harlow: Pearson Education Limited.
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Brown, S., Lamming, R., Bessant, J. and Jones, P. (2005) Strategic Operations Management. 2nd ed. Oxford: Elsevier Butterworth-Heinemann. Brown, D. R. (2011) An Experiential Approach to Organizational Development. 8th ed. New Jersey: Prentice Hall. Blythe, J. (2006) Essentials of Marketing Communications. 3rd ed. Harlow: FT Prentice Hall.
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Appendices Appendix 1: Examples of Diesel’s promotional campaigns
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Appendix 2: Examples of website page and social media accounts
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Appendix 3: SWOT Analysis Strengths •
•
Superior brand positioning in
•
Potentials in prospecting for
terms of promoting individualism,
independent designers in Asia for
which is a trait commonly
future collaborations that would
embraced by current young
grow Diesel’s brand values
adults.
through new lifestyle concerns
Wide array of retailers worldwide
such as income inequality and
seeking for Diesel’s franchising
racial tensions.
deals, allowing the brand to
•
Opportunities
•
E-commerce platforms serve as
expand its market.
cheaper alternative for Diesel to
Strong public relations activities
expand geographically.
including marketing campaigns that went viral such as ‘Be Stupid’. Weaknesses •
Existing franchisees may not
Fast fashion brands such as Zara and H&M are gaining traction in
potentially damaging the brand
the industry. •
Diesel’s approach to not recruiting
Asian territories may not be as
celebrities in endorsing marketing
receptive towards individualism
campaigns may attract smaller
as compared to Western countries.
customer base.
Appendix 4: Porter’s 5 Forces 31
•
retain Diesel’s quality standards,
image. •
Threats
Competitive Rivalry •
High level of threat
•
Similar product offerings
• Diesel’s brand positioning may not be sustainable Threat of Substitutes •
Medium level of threat
•
Fast fashion and luxury brands may continue to drive the fashion trend
•
Consumers are commonly affected by peer pressure, which results in
purchasing from mainstream brands Threat of New Entrants •
Low level of threat
• Fashion industry remains as a capital-intensive sector to enter Buyer’s Bargaining Power •
High level of threat
•
Low switching costs for buyers in fashion industry, as fashion trend changes
seasonally Supplier’s Bargaining Power •
Medium level of threat
•
Reliance on selected number of suppliers may threaten profit margin in the future
Appendix 5: PESTEL Analysis Political •
Possibility of rate hike by Bank of England
• Active discussions on ‘Brexit’ from European Union Economical 32
•
Consumers’ disposable income may be threatened from current economic slowdown
•
Globalisation rendering businesses worldwide to be easily affected by
economic forces Socio-cultural •
Shifting fashion trend towards fast fashion brands
•
Individualism is a trait that is encouraged in Western-cultured countries such
as United Kingdom Technological •
E-commerce platform is a cheaper alternative for expansion plans
•
Customer data collected by Diesel through online sales could be used to
understand purchasing behaviours in the future Environmental •
Waste attributed from used clothes face intervention from environmental agencies in terms of lobbying for stricter regulations
Legal •
Rise in minimum wage would increased labour costs
•
Trade unions often implement strikes in London, which could influence labour costs
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