Harbour is a British, family-owned brand which has been manufacturing sailing jackets for over a century. They sell the vast majority of their products within the British Isles, where they generate revenues in excess of £500m
Traditionally, Harbour had sold primarily to those involved in activities like sailing and fishing and to others who live in coastal areas. The brand has traditional associations and seldom changes its designs.
However, in recent years, the newer sailing brand Clipper has been enjoying huge success in this market. Clipper offers highly technical sailing wear with constantly developing designs and is rapidly becoming the brand of choice for those serious about sailing and similar coastal activities. It is well-stocked in chandleries and other specialist sailing shops.
Whereas Clipper has previously operated exclusively at a high price point (slightly higher than Harbour), they are planning to release a more affordably-priced line of technical sailing jackets.
In recent years, Harbour has become increasingly successful in the fashion market, selling to customers with no maritime connection at all. The market for the sailing-style fashion jackets has been growing in recent years, whereas the market for technical jackets has maintained the same size.
All these developments have prompted Harbour's owners to reconsider the direction of their company. With limited resources, they want to know whether they should focus on the technical sailing or fashion markets in future. As such, they have engaged our services to advise on a future strategy for their business with the coastal customer segment as well as to conduct analysis as regards market sizing and the competitive landscape.
Prior to your own involvement, some of your colleagues have already started work on the engagement.
Their contribution was to commission a survey of 1000 consumers nationwide and to conduct their own analysis of Harbour's costs and pricing. The analysis found that Harbour is selling within the premium end of the market in both the sailing and fashion markets.
Identify the Problem
The candidate should begin by clarifying the details of the prompt, so as to fully understand Harbour's problem.
The company has two major ranges. One focuses on technical sailing jackets and the other on sailing-style fashion jackets. These are referred to as Technical and Fashion.
Technical is the larger in terms of sales. Fashion accounts for a smaller fraction of sales, but has grown rapidly.
Harbour has three main competitors: Clipper, SaltTech and La Gradinate. Between them, these companies account for over 90% of the UK sailing jacket market.
Clipper and SaltTech specialise in modern, technical sailing jackets. They are well known and respected by those in and around the sport. As noted, Clipper has made large inroads into the market recently, growing to account for over 50% of the technical sailing market in the past five years.
Technical sailing jackets tend to be sold to those from coastal communities, who often use the jackets for sailing, fishing and similar leisure and/or work activities.
La Gradinate is an Italian firm which specialises in fashion products with a sailing aesthetic. They tend not to sell to actual sailing enthusiasts but are most popular with fashion-oriented consumers from inland communities. In particular, La Gradinate's products have cult status with soccer fans and their brand is heavily associated with that demographic.
In recent years, Harbour has sat between Clipper and La Gradinate in selling jackets to both coastal technical and inland fashion customers.
Since venturing further into the fashion side of the market, Harbour has seen its sales to sailing enthusiasts reduced. It is speculated that the popularity of the brand amongst the inland and particularly soccer fan segment has damaged its appeal amongst the sailing market.
The candidate should now estimate the size of the sailing jacket market.
Market Size = Average Jacket Price x Percentage of Population Buying Sailing Jackets x Number of Jackets Bought Per Person Per Annum x Total Population
The candidate needs to make reasonable assumptions as to the number of sailing jackets bought and the mean price per jacket.
It can be assumed that customers will not purchase more than one jacket per year. Thus, we assume that each customer in Exhibit 2 corresponds to one jacket purchased.
We can get an idea of how much technical and fashion jackets cost by comparing the average prices paid by coastal vs inland buyers in Exhibit 3.
Technical jackets cost more at approximately £500.
Fashion jackets are significantly cheaper, at approximately £200.
Market size for the technical jacket market
Market Size = (25% x 5m x £500) + (2% x 21m x £500) = £625m + £210m = £835m
Next, the candidate should establish whether Harbour receives a greater fraction of its revenue from technical or fashion jackets. To do so, the candidate must calculate the market size for sailing-style fashion jackets.
Market size for the fashion sailing jacket market
Market size = (5% x 5m x £200) + (18% x 21m x 200) = £50m + £840m = £890m
From Exhibit 1, Harbour has a 35% share of the technical and a 30% share of the fashion market.
Revenue from Technical = 0.35 x 835m = 292m
Revenue from Fashion = 0.30 x 890m = 267m
Therefore, Harbour derives most revenue from Technical, though the split with Fashion is very even.
The candidate should analyse why Clipper has been outperforming Harbour in the technical sailing jacket market. From what we have learnt so far, we can segment this analysis into the following four key areas:
- Buyer Decision Criteria for each brand
1. Buyer Decision Criteria
Exhibit 7 shows us that Clipper's two most associated criteria are Quality (51%) and Technical Functionality (45%).
By contrast, Harbour's two most associated criteria are Style (45%) and Quality (31%), with technical functionality much lower (at 15%).
Harbour is not meeting the most salient demands of coastal users and should improve its perception of technical functionality in order to improve sales with that segment.
It should also be noted that Clipper has now become an established choice amongst its buyers. "Personal Experience" is its third most associated criterion (at 35%). This points to significant brand loyalty from Clipper customers.
We already know that Clipper is going to be launching a more affordably-priced line of sailing jackets.
Harbour could consider lowering prices in response. However, looking at the market data we have, we can see that price is generally not an important factor in customer decisions.
Given that price does not seem to be important to buyers in this market, lowering prices might simply lower profits by decreasing margins without increasing sales. Indeed, lowering price might actually lead to the perception that quality and/or technical functionality has been reduced, which might actually lower sales.
If we compare the costs of Harbour to Clipper in Exhibit 8, we see that the most notable differences are Clipper's much higher spend on materials Design and R&D. This bolsters customer perception of their jacket's better technical functionality and higher quality.
Retailers' margins are lower for Clipper as a result of their ubiquitous presence throughout specialist sellers.
Clipper spends less on sales and marketing than Harbour, which is likely due to the lesser demands in this regard when selling via specialist sailing suppliers/chandleries, as well as Clipper's well-established brand recognition and loyalty amongst their customer base.
Clipper has lower margins than Harbour and Harbour has limited room to raise prices without becoming more expensive than Clipper. Given Clipper's existing lead on perceptions of quality and technical function, this might negatively affect perceptions of value for money amongst customers comparing the brands, suppressing sales further. Rather, it might be better for Harbour to reduce its margins slightly and increase their emphasis on technical function and quality via higher spends on some or all of materials, labour, R&D and design.
Harbour is hardly stocked in the specialist retailers where technical sailing jackets are being bought.
Exhibit 6 shows that these retailers are where a large fraction of Clipper's and SaltTech's jackets are purchased, but Harbour does not sell many of its jackets via this channel.
If it wished to increase its market share in the technical market, it will have to be stocked by these retailers.
Harbour is hardly stocked in the specialist retailers where technical jackets are predominantly being bought.
Harbour is not fulfilling the key needs of coastal/technical buyers, having relatively low perceptions of quality and especially technical functionality.
Clipper prices itself competitively, which has likely helped it develop its solid customer base.
Clipper spends less on marketing and advertising and its retailers have lower margins than Harbour.
Harbour can take one of two courses of action:
- Work to increase its presence in the technical jacket market.
- Focus on fashion sales
Both options can be supported by their own rationale and both require different action to be taken going forward.
1. Technical Market
The technical market has higher margins of 20% and accounts for approximately 60% of Harbour's total profits.
Thus, neglecting this market could easily threaten the firm's overall profitability. This is especially true where focus on the fashion market might damage Harbour's brand for coastal buyers.
Harbour has a smaller market share in the fashion market. That total market is larger, but it is also likely to be subject to strong competition, new entrants and rapidly changing trends, which might make it difficult to grow and maintain market share.
Clipper's introduction of its affordable line of jackets would seem to suggest that that competitor firm perceives some potential for growth in the specialist sailing market. Harbour may also be able to take advantage of this.
Increasing the visibility of the brand amongst coastal/sailing communities might encourage them to try items from the fashion line (and perhaps decrease the antipathy towards that line).
- Increase perceptions of quality and especially technical function amongst coastal users.
- To do so, increase spend on some or all of materials, labour, R&D and design.
- Increase promotion of brand to coastal/technical users
- Possibly introduce a sub-brand with a specialisation on technical users, with high levels of technical function.
- Increase stocking in specialist retailers/chandleries - However, note that trying to get stocked by specialist sailing retailers/chandleries, Harbour might encounter resistance from Clipper's influence on those retailers.
- Look at specific niches in the market which Harbour might be well placed to exploit. Suggestions should be well-justified.
2. Fashion Market
This is a valuable market for Harbour at present. The market as a whole is growing and Harbour's share of that market has also grown rapidly in recent years.
Focusing design and marketing on coastal/technical customers might reduce the brand's appeal to inland/fashion customers.
Style is the top decision criterion for Harbour. From our data on Clipper and SaltTech, we can see that this is not a primary consideration for coastal/technical customers. Emphasis on the fashion market might allow Harbour to focus on excelling where their strengths already lie.
- There is unlikely to be a strong competitor reaction since Harbour is already a major player and the fashion market is more fragmented.
- Will not need to enter new distribution channels.
- The candidate should discus how to go forward as regards the technical market. This might be maintenance of activities in that market or winding down.