Page 3: Strategy
Marks & Spencer's entry into the German market had been carefully considered for some time. With re-unification, the population of Germany expanded from 65 million to more than 80 million and, as the world’s second largest exporter following the USA, Germany is a highly industrialised country with a strong service sector and high population density. Germany is also the world’s largest import market. Timing is a key element in any strategy. In 1990, an entry strategy was considered but high property costs and intense competition between retailers suggested it would be prudent to wait and monitor the market. A period of recession for the German economy then followed.
The recession saw a change in the structure of German retailing with the merger of a number of major department store chains. There was also an apparent lack of differentiation between many of the retailers. By the mid 1990s, however, prospects looked much more attractive - market and entry costs were falling and the ‘new Germany’ was gradually reborn. Marks & Spencer’s good value and consistent high quality products, combined with clarity of display and customer service package would provide a clear market position.
Opportunities in the German market
Gross Domestic Product, GDP, is a measure of national wealth. Germany's GDP is a staggering £1,500 billion, nearly three times that of the UK economy. German consumer expenditure is 50% more than the UK and 22% higher than France. With economic indices such as inflation under 2% and retail sales in Germany of £331 billion, even a very small share of such a vast market represented a sizeable opportunity for Marks & Spencer.
Germany has more major towns and cities than any other European country (16 with a population of over 400,000). Following re-unification, a large proportion of goods that would have been exported were diverted to the former East Germany. There was also a strong rise in imports from elsewhere in the European Economic Community.
Germany is the largest clothing and food market in Europe. Research showed that:
- German consumers have a clear appreciation of consistent high quality. Marks & Spencer products would be very good value if products were sold at competitive prices.
- As well as Marks & Spencer’s known market strength in Lingerie, there was considerable potential in a wider range of clothing, such as men and women’s tailoring and natural fibre knitwear. There was also added value through technical innovation of clothing and raw materials e.g. tactel, tencel, cotton, teflon finishes, fibres and stretch.
- Marks & Spencer’s ‘added value’ approach to Foods would be quite unique and offer a prime differentiation factor. For example,Marks & Spencer’s ‘chilled offer’ was far more than local retailers could offer and standards of quality, freshness and hygiene would stand out against the lower standards in supermarkets and discount stores.
- Marks & Spencer had examined customer requirements and catered for the preferences of the German market.
- There was a huge snack lunch market with good potential.
- Layout and presentation techniques, shop keeping standards, customer service package, IT based ordering systems and product information would all compare favourably against the established stores.