TMP 244

Entrepreneurial Marketing

Spring 2016

Final Case Report

El Cerrito: Driving Growth

Harshitha Chidananda Murthy

Perm Number: 9987819

Table of Contents

1. Answers

a. Answer 1

b. Answer 2

i. Answer 2a

ii. Answer 2b

iii. Answer 2c

iv. Answer 2d

v. Answer 2e

2. Tables

3. Graphs

4. Figures

5. References

1. Provide a situational analysis (SWOT) analysis of El Cerrito (EC) in the leather goods market in 2000 given the case input

Strengths

High Quality: EL Cerrito products were well

known for their quality and company focused

largely on quality of the product [Ref 1] [Fig 3]

Diversified products: As the company grew,

they started selling new products [Table 1]

Varied channel of distribution: El Cerrito had

different channels of distribution:

o Company-owned stores

o Retail

o Online

Longest presence in Market: El Cerrito has

been selling its goods since 1936 (USA) [Fig 1]

Stable and Profitable company: Revenue for

fiscal 2000 was $550M and Operating Profit

was $56M [Graph 2] [Table 2]

Public company: RS International was a public

company which gave it a market

capitalization of $800M

Affordable luxury brand: Their price was

affordable with good quality offering

Weakness

Slow growth: The firm began with 6 employees

and grew slowly [Ref 1]

More Emphasis on quality: The emphasis on

quality was more than the design

Quality and Purchase trade-off: Since the

product has rich quality, people usually buy

only once in several years. Hence, if a customer

makes a purchase once, the next purchase

would be made by the customer only after

several years

Raw look: People considered leather to be a

raw look during 2000 and only few people

bought it. So mostly only the trend-setters

bought it.

High costs: High costs in terms of

o Administrative cost

o Duties and Tax

Lack of promotional activities: The company

has variety of products, but very less efforts

was laid in promoting

Opportunities

Improve online presence: El Cerrito had

online presence even in 2000.

Reliable brand and emerging market growth:

El Cerrito has marked themselves as a reliable

brand and this could have been used to get

hold of greater market share

Whole sale discounts: Company could give

discounts on whole sale, so as to encourage

mass buying of the products

Leverage quality and brand name: Since the

company was already known for their good

quality and brand, they could have leveraged

this fact to gain more customer gain

Rise in Export: Have global presence and sell

to more countries

Be market leader in new leather products

Threats

Strong competition: Faced severe

competition from European brands like Coco

Channel, Louis Vuitton, Hermes [Graph 4]

Investment in fashion line: Since the company

already offers good quality product, the

company could have invested more on

making their products more fashionable

Increase in manufacturing cost: The

manufacturing cost has been increasing with

each year making the company gain less

marginal price with each growing year

Environmental causes: Since leather is mostly

made out of animal skin, the rise in

environmental awareness among the people

might act as a major threat to the company

2. Assumption: 2015-2016 Case

2a. Upgrade your SWOT if needed. Highlight the changes and “why” you have made them

Strengths

Shift from quantity to quality over the past

decade: Increasing use of quality components

Continuous emphasis on product

Meat production continues to be number 2,

hence no added import cost [Table 3]

Willingness to Pay: For good quality leather

products, people are willing to pay any price,

especially in developed countries like USA

Continues to hold strong position locally

Faster delivery options

With the development in technology, easy

communication and base set up across

countries

Growing fashion consciousness globally

Weakness

Online market still unexplored

New unmet trends in the market

Increase in tax and cess

International price fluctuation

High labor force: resulting in high labor charges

Lack of strong presence in the global fashion

market.

USA in not in top 10 producer of leather [Table

5]

Unorganized sectors

No pronounced improvement in research and

development

Still no wide geographic coverage

Lack of easy access to online customers

Opportunities

Extend relationship with

o Chemical industries

o Finishing auxiliaries

o Tanning base

o Modernized manufacturing units

Rising potential in the domestic market

Collaboration with leather institutes and

leather research labs

Consumer expectations rise year by year and,

to maintain its position, the leather and

leather products industries require ongoing

research at all levels.

Participate in International Leather fairs [Ref

3] and El Cerrito should collaborate with

various leather organizations well established

in USA over the past decade [Table 6]

Expand to Asian market

Franchises have gained popularity only

recently

Use internet and E-commerce as a medium to

sell products

Threats

Growing domestic market for footwear and

leather articles

Major manufacturing and tanning firms are in

the process of shifting their base to

developing countries sue to high wage levels

and strict environmental norms in developed

countries

Stricter international standards

Increase in competition

Lack of communication facilities and skills

With increasing pressures regarding

chemicals, water usage, and landfill issues,

researchers are called upon to ensure the

stability of the industry

Growing competition from developing

populated countries like China, India and

Japan

Continuous policy changes

Recession strongly affects leather industry

2b. Recommend a positioning statement for El Cerrito

“El Cerrito is an affordable luxury brand providing varied range of quality leather products to choose from

for those who are looking for comfort and good experience. El Cerrito is one of the early movers in leather

industry, dominating since 1936 in offering good quality products at reasonable price and is well known

because of the importance the company gives to the brand”

2c. Identify the segments, their characteristics, motivations, and needs/desires

El Cerrito can be divided based on Income level, demographic and new segmentation.

Segment description based on Income level in USA

Segment Characteristics Motivation Needs/Desires

Rich Stands 2nd in population after

Middle class [Graph 7]

Look for quality and luxurious

brand. Brand conscious

Willing to pay any amount for a

branded and high quality product

Own high end designer goods

It is possible to obtain

brand loyalty from the

rich segment

Sending gifts to them

during special occasions

will motivate them to

buy more products

Good quality products

Use only branded goods

Always looks for

uniqueness

Liked to be paid special

attention

Middle

Class

Forms majority of the population

[Graph 7]

Willing to pay a little more for

quality products

Has varied options to choose

from

Highly influence the market

It is possible to get greater

market share in middle

class by offering:

Good discounts

Variety of products

Fashionable products

Coupons

Good online presence

Reasonable pricing

Good customer service

Perfect balance of quality

and pricing

Fashion trend-setters

Usually buys what

everyone around them

are buying

Poor Forms least set of population

[Graph 7]

Spend only on basic necessities

Usually earn money on day to day

basic

Give out of trends

products at a much

lower price or for free

Can sell during off-

season

Look only for basic needs

Usually, finding food is

the main priority

Frugal spending

Segmentation based on Age in USA

Segments Characteristics Motivation Needs/Desires

Boomlets They are 8-12 years old

Use what their parents choose for them

Unaware of brands

Get inclined towards attractive products

Like to use playful goods

Look for products that can entertain them and attractive

Millennium Form the largest group [Graph 6]

Easily influenced by surrounding

No strong intention of saving

Buy products that have good discount, but also good quality

Look for fashionable goods

Like shopping

They need

Fashionable

Good quality

Good pricing

Varity of options

Generation

X

Next large group

Usually have a family

Save money

Once this segments like a product, they continue to buy the same

Money conscious

Spends reasonable money

Baby

Boomers

First generation to witness many things, like increase in working women, technology, innovation, etc.

They are motivated to buy products that last long

Habit of buying the same product again

Like to buy long lasting products

Pays reasonable price

Mature + GI

Generation

Less in number

Strong loyalty for brands

Buy products with reasonable price

Look for quality over quantity

Comfort

Quality

New segments, characteristics and Unique value proposition:

University students: There are a large number of university students who are fashion conscious

and usually buy what other students are buying. So on campus delivery and online invitation to

buy products would greatly profit the company and customer base increases.

Focus of having more sales during mid-winter season when temperature is moderately cold and

this is the best time to wear leather jackets. Provide discounts during other seasons as off-season

discounts

Geographic segmentation:

o The current geographic segmentation for the company is to concentrate on the

metropolitan cities of the country only as they have greater population, fashion

conscious, trend-setters and increase sales

o Expansion at a global level: Expand the customer base at a global level. Since Europe is

already dominated, choose Asia since the population is more, fashion conscious, position

as market leader. Offer good starting promotion and online advertising

Sales of Pet goods and services are growing at 6.5% a year. 93% of the owners buy at least one

gift for their pets each year, and 55% buy four or more. Hence dog chains, etc can be made of

leather and sold. Emphasis on the fact that metal may be irritable to pets, hence to use leather

neck chains.

2d. Select the segments that you think the company should prioritize on and define the Unique Value Proposition

Among the segments based on income level, it is wise for El Cerrito to focus on Middle class since

they form the highest percentage in population [Graph 7], look for luxurious products at affordable price

and if majority of them buy the product, then the rest will also most likely buy since this segment is

influenced a lot by people around them. Product can be marketed to these customers by having strong

promotion and good customer care to ensure they are satisfied with the product and continue to increase

customer base by word of mouth.

Among the segments based on generation, it makes sense for El Cerrito to focus on Millenniums

as they not only form the largest group, but are willing to try new things and like shopping more than any

other group. It is easy to attract such customers with various discounts and coupons to ensure they keep

buying the product more and more. The company could also offer gifts coupons in order to make customer

feel special and try more of their new products. They usually get easily convinced to buying products.

2e. Determine the “4 Ps” for each segment you choose

The 4 P’s described below holds well for all the segments: Product

El Cerrito has range of products which are high-quality

They started with Leather wallets

Leather handbags

Belts

Key rings

Charms

Folios

Different material products

Attract new segment of customer by adding new products New product scope:

Leather chains for pets

Leather footwear

Leather sofas

Leather chair cushions

Stylish leather jackets

Leather Jackets

Phone leather cases

Price

Affordable luxury brand [Graph 5]

Offer pricing depending on the place:

o If the place already has good market leader,

then offer good discounts and promotional

coupons

o If the place does not have a market leader in

leather, then strongly position the brand so as

to leverage initial movers in the industry. Try

skimming technique for such a place

o If the place has other leather sellers, but none

are market leader, offer reduced price initially,

so as to set up good brand value and then go

on to increase the price of the product.

Make efforts to foresee the price before

competitors do.

Increased price for customized leather products

such as collars, key chains, etc.

Place

El Cerrito Channel of distribution:

o Company-owned stores [Graph 1]

o Retail

o Online

Increase of sales through whole-sale retailers

Massive improvement needed in terms of online

presence and online promotion

Sell using eBay, Amazon, Walmart, and other well-

known online shopping websites

Expand globally:

o Target Asian countries as there are no well-

established market leaders yet

o Focus on metropolitan cities as the population

is more and more fashion conscious

Consider tie-ups with sports bikes and raw bikes

like Harley Davidson

Consider tie-ups with research and development

in universities to improve products

Pay more attention to advertising and selling

using technology

Promotion

1-year warrantee on all products

24*7 toll free customer care number to satisfy the

customer

Continuous feedback from customers

Special offers + Free gifts during special occasions

Endorsement by celebrities in advertisements

Endorsement in movies

Grand launching events in new places

Good online presence in social media like

Facebook, twitter, blogs, Quora, Medium and also

good website

Clearance sale at the end of year

Presence in many fashion Magazines, specifically

women’s magazines

Have photos of normal people who use the

product in Instagram. This encourages more

people to buy products

Promote in international leather fairs.

Promotion through:

o Television

o Newspapers

o Online advertising

o Banners

TABLES

TABLE 1: El Cerrito existing and future scope

Existing Products Future scope

Leather handbags Leather chains for pets

Belts Leather footwear

Key rings Leather sofas

Charms Leather chair cushions

Folios Stylish leather jackets

Leather Jackets

Phone leather cases

Table 2: El Cerrito Financial Results

Results 1997 1998 1999 2000

Net Sales 540.4 522.2 507.8 548.9

Cost of sales 227.1 235.5 226.2 220.1

Gross Profit 313.3 286.7 281.6 328.8

SG&A 269.1 261.7 255 272.8

Operating Income 44.3 25 26.7 56

Gross Margin 58.00% 54.90% 55.40% 59.90%

SG&A 49.80% 50.10% 50.20% 49.70%

Operating Income 8.20% 4.85% 3.80% 10.20%

Table 3: Major meat producing countries

Table 4: Major Leather producing countries

Table 5: Leather Production by country

Table 6: Organizations El Cerrito should collaborate with

Column1 International Leather Organization

Organization Expansion

ALCA American Leather Chimists Association FFANY Fashion Footwear Association of New York

FIA Footwear Industreis of America

LLGMA Luggage and Leather goods manufacturers of America

SSIA Shoe Service Institue of America

Table 7: Expensive brand competitive analysis

GRAPHS

Graph 1: El Cerrito Company-owned stores

Graph 2: El Cerrito Financial Results ($ in Millions)

0 20 40 60 80 100 120 140 160 180

U.S branded

U.S Outlet

Total

FY 2000 FY 1999

0

100

200

300

400

500

600

Net Sales Cost of sales Gross Profit SG&A Operating Income

1997 1998 1999 2000

Graph 3: El Cerrito Gross Margin, SG&A and Operating income

Graph 4: Price of Handbags offered by different companies

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Gross Margin

SG&A

Operating Income

2000 1999 1998 1997

250

100

90

3000

5000

0 1000 2000 3000 4000 5000 6000

El Cerrito

Kohls

Sears

Louis Vuitton

Hermes

Price($)

Graph 5: Leather production and trade in 2006

Graph 6: Population division based on age

350

550

422

222

in Million sq. ft

Output Export Import Available

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Population

Graph 7: Income Level in USA

0 200000 400000 600000 800000 1000000

Bottom 10%

Bottom 20%

Bottom 25%

Middle 33%

Middle 20%

Top 25%

Top 20%

Top 5%

Top 1.5%

Top 1%

Starting Ending

Figures Figure 1: El Cerrito logo

Figure 2: El Cerrito: Driving Growth, History of El Cerrito

Figure 3:

Figure 4: El Cerrito: Driving Growth : Quotes by Sara Jansen, CEO, RS International

Thank You Professor

REFERENCES

[1] El Cerrito: Driving Growth

https://hbr.org/product/el-cerrito-driving-growth/KEL929-PDF-ENG

[2] Leather Market

http://leatherpanel.org/sites/default/files/publications-

attachments/future_trends_in_the_world_leather_and_leather_products_industry_and_trade.

pdf

[3] International leather fairs

http://10times.com/leather/tradeshows

[4] Understanding market of Chanel

http://www.slideshare.net/UznadzeSonia/chanel-new-product-team-f

[5] Understanding Leather market

http://www.slideshare.net/anmol135/market-segmentation-of-a-company?qid=7eede1b6-

bd6c-405e-820c-9747f57fc296&v=&b=&from_search=11

[6] Demography of USA

https://en.wikipedia.org/wiki/Demography_of_the_United_States

[7] Six generation in America

http://www.marketingteacher.com/the-six-living-generations-in-america/

[8] Market Segmentation

https://www.mindtools.com/pages/article/stp-model.htm

[9] Leather Jacket, bikers

https://www.google.com/search?q=harley+davidson+bikes+leather+jacket&espv=2&source=ln

ms&tbm=isch&sa=X&ved=0ahUKEwivotbhpY7NAhWq64MKHakyDzUQ_AUIBygB&biw=1745&bi

h=828