Case Study Peruvian Handmade Bags Marketing Essay

INTRODUCTION

Peruvian handmade bags are currently rare sights in Singapore, thus Natasha’s new business idea is likely to be a hit among the locals. To ensure its success, it is crucial to identify its value chain activities, adopt suitable strategies and remain competitive.

VALUE CHAIN ACTIVITIES

Primary Activities

Inbound logistics: Natasha has to purchase and store the bags not on display. Furthermore, she has to keep track of the stock, especially the various designs that she imports, so as to ensure that there are sufficient goods for sale.

Operations: Natasha has to take out the newest bags of different designs, clean them properly, and put them up for display with the pricings labelled clearly.

Outbound logistics: Natasha has to process the bulk pre-orders, pack the new bags nicely, and deliver them to the customers at the time which they requested.

Marketing/ Sales: Advertising and promotions through magazines and flyers increase the customer pool. It is easier to reach out to potential customers since the shop is located in the usually packed Bugis Junction, but first, Natasha will have to inform customers of the opening of her new business.

Service: Besides providing excellent service, a feedback system has to be set up. A feedback box should be placed at the cashier for customers to give feedback on the quality of the bags and the services rendered, so that the shop can strive to improve.

Support Activities

General admin: Natasha will have to obtain a license to start the business [3] , and then liaise with the shop owner for rental at Bugis Junction [4] . She will also have to liaise with packaging companies to get supplies for plastic bags and wrappers. Furthermore, she has to take care of the shop accounts and bank in the revenue on a weekly basis.

Human resource management: The business needs to recruit full time shop assistants to tend to customers and a manager to oversee the general management of the shop. Temporary staff is needed especially during festive seasons and sales. The employees must be well trained to ensure business efficiency. Rewards and incentive programmes, such as getting commissions if they manage to reach a certain number of sales, should also be implemented to minimize absenteeism and motivate employees to work harder. They should also be eligible for staff discounts when they purchase any bags.

Technology development: An information system, which stores data of regular customers and the popular designs, should be established so that she can identify and cater to the wants of customers. The shop should be decorated in a way that will capture the attention of passers-by, such as placing the newest designs near the main entrance of the shop, and it should also be equipped with security devices to prevent theft.

Procurement: Although the current supplier can provide a regular supply of good quality bags, it is very risky for Natasha’s shop to depend on only one supplier. Hence, she has to source for other suppliers who sell Peruvian handmade bags at reasonable prices so as to diversify risks of business failure. Besides that, Natasha will also have to monitor and do checks on the bags to ensure quality maintenance.

THREE GENERIC STRATEGIES

Cost Leadership Strategy

This is an integrated set of actions designed to produce or deliver goods and services at the lowest cost. Firms producing a high volume of goods can reap essential economies of scale. One strategy is to have a tight cost and overhead control. Natasha should oversee the business personally and gain experience in the merchandising process so as to cut costs suitably at the right place and time. Prices will be lowered which benefits consumers, and better handle price competition. However, she should not focus on certain chain activities and neglect other activities as this will result in ineffective cost reduction.

Differentiation Strategy

This strategy is an integrated set of actions designed to produce and charge a premium price for goods that are deemed unique and different as compared to the competitors in the industry, while assuming that customers are agreeable to pay a higher price for them. One strategy is to establish a brand image. Her firm should build up its reputation by selling good quality bags at reasonable prices and providing top-notch services, for example complimentary gift wrapping and bags servicing. This instills brand loyalty among the customers, which will be a long term benefit as this lowers the customer’s sensitivity to the prices. However, this is a long term strategy as it takes a long time for the firm to build up its reputation.

Focus Strategy

Focus strategies exploit a particular market niche, which helps the firm compete in different markets as compared to its close rivals. Natasha can target the middle and higher income group. Peruvian handmade bags require higher costs of production due to the intensive human labour and specific skills required, resulting in the higher cost as compared to other bags in the market. Therefore, she should target the working adults, since they have higher financial capabilities to purchase the bags.

FIVE FORCES MODEL OF INDUSTRY COMPETITION

Threat of New Entrants

There is a relatively high threat of new entrants as the shop is small-scaled and has low barriers to entry in the bags industry. Currently, there are few shops in Singapore which specialize in the sales of Peruvian handmade bags so it is possible that there will be a flow of potential entrants into the market especially since the set up cost of the business is rather low. One way to reduce threat of new entrants is to increase the barriers to entry into the industry by aggressive advertising and maintain customer loyalty. However, costs will be incurred for advertising and it will take a long time for the business to build up its reputation and pool of loyal customers.

Threat of Substitutes

There is a high threat of substitutes due to the wide variety of bags available in the market. Hence, Natasha should focus on the uniqueness of her products. She can import bags of unique and attractive designs which can cater to the masses. However, higher costs are likely to be incurred for bags of better designs and quality, which will result in a slight surge in prices. This may deter customers from purchasing the goods.

Rivalry

Rivalry among competitors is high as there are many businesses selling bags. The business will be threatened, especially in terms of price competition. The average profitability in the bags industry will be eroded, thus resulting in low profits. One possible solution is to establish a distributor agreement with the Peruvian supplier to supply goods to only Natasha’s business in Singapore. This helps to decrease the supplies available to rivals, and lowers competition. However, the supplier may be reluctant to forgo the other businesses in Singapore and cater solely to her small business.

Bargaining Power of Buyer

Natasha’s small business has a low bargaining power as its purchase of bags is relatively insignificant to the supplier’s sales. Hence, she may want to increase the purchases of bags each time, so that she will be entitled to discounts, and to increase the purchase volume relative to the sellers’ sales. The purchase will then be more significant to the supplier. However, availability of storage space may be limited and there is a risk that the inventory turnover rate may be low. The designs may become outdated, making it difficult to clear the stocks.

Bargaining Power of Supplier

The business is vulnerable because Natasha secured contact with only one supplier. The supplier has a high bargaining power since the bags are the most important inputs to her business. Hence, it can threaten to raise prices or reduce the quality of the goods. Furthermore, the bags are highly differentiated, resulting in a higher switching cost which further strengthens the supplier’s bargaining power. One solution is to sign a long term contract with the supplier, and fix the price that she has to pay for the goods. In the long run, she should also search for other suppliers that provide quality bags at reasonable prices. However, Natasha may face high switching costs when she switches suppliers, as she may not be entitled to the same discounts and benefits from the previous supplier.

APPENDIX 1 – PERUVIAN HANDMADE BAGS

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Bohemian Pima Cotton Rose Bag

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Bohemian Pima Cotton Rose Bag

£289 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Oaxaca Market Bag

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Oaxaca Market Bag

£75 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Peony Handbag

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Peony Handbag

£75 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Vagabond Bag

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Vagabond Bag

£399 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Silk Begonia Clutch

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Silk Begonia Clutch

£159 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Paladium Clutch

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Paladium Clutch

£159 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Chuspa Bag

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Chuspa Bag

£110 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Memento Clutch

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Memento Clutch

£218 http://yz1.peruvianconnection.com/images/en_GB/global/globalgraphics/spacer01.gif

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Trans-Continental Leather Bag

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Trans-Continental Leather Bag

£349

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http://www.peruvianconnection.co.uk/category/womens+accessories/designer+bags.do?page=1

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Shoulder Bag (11 x 12 inches) – Multi colored

Code:21501501-1

Price:$18.50

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Shoulder Bag (11 1/2 x 12 inches) – Multi colored

Code:21501501-3

Price:$18.50

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Shoulder bag (16 x 10 inches) – Cusco textile (Blue)

Code:21501701-1

Price:$24.00

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Shoulder bag (16 x 10 inches) – Cusco textile (Red)

Code:21501701-2

Price:$24.00

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Shoulder bag (16 x 10 inches) – Cusco textile (Pumpkin)

Code:21501701-3

Price:$24.00

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Travel bag (23 x 20 inches) – Cusco textile

Code:21501901-1

Price:$80.00

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APPENDIX 2 – DEFINITIONS

Value Chain

The value chain is a business management concept which identifies firms as a collection of value-creating activities. Each activity adds value to the product, but will result in the firm incurring further costs to produce and sell the product.

Three Generic Strategies Model

Michael Porter’s three generic strategies can be adopted by firms to overcome the external environment’s five forces, and achieve and maintain competitive advantage. Each has the potential to allow a firm to outperform their rivals in the industry. The three strategies are cost leadership, differentiation, and focus strategy.

Five Forces Model of Industry Competition

Michael Porter’s five forces model of industry competition helps a firm to examine its competitive environment. Each of these forces affects a firm’s ability to compete in a given market.

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