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Strategic Analysis of HMV

Introduction

UK’s record industry is led by HMV records which had been suffering from slow growth and stagnant and declining profits for the last couple of years.HMV has for long earned its name in the record retail industry and has to continue to reap more profits in this industry and continue to lead but this can only be done successfully having fully audited the external and internal environment and assessing the strategic position of the company from the marketing management point of view (Cream Global, 2010).Although there is nothing wrong with the methods and tools of marketing and promotion the company is currently using, but there seems to be gap between the minds of the retailer and the minds of the consumers and difference of timings in strategy implementation which is causing a recent decline in sales in records (All Business, 2011b).

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The paper conducts a strategic analysis of the company using PESTLE, Porter’s Five Forces Analysis, and SWOT analysis to analyse its current position and recommend what it could do to improve its position by means of viable strategies and actions.

Company Background

History

HMV (His Master’s Voice) is UK’s largest, oldest and most popular record retailer which has excelled in the industry, brought life in the entertainment it promised to its customers through continuous innovations and improvements in services throughout decades. It was originally started in London and now its operations and services reach far ends of the world. It has around 692 stores in Asia, Australia, US, Canada and Europe, where it specializes in selling CDs, DVDs and other forms of music products (Experian, 2010). It has made its services, marketing and promotion and the whole consumer purchase experience highly technologically enhanced whereby allowing customers to have a wholesome and enjoyable shopping experience (Design Council, 2010). HMV uses the ‘Dog and Trumpet’ technique in marketing and promotion of its brand by infusing the emotional attachment and flavor that has been entailed with its heritage. Having been visible in the retail scenario since 1910 with its oldest store in Oxford Street, London, HMV has had a rich heritage no doubt and has had the opportunity to be the ‘first’ in many service offerings and practicing many new innovations, such as those that it is currently offering (Guardian, 2011a).

Customers

HMV’s customers include young and old and people of all ages and now that has had its services established worldwide it offers no geographical limit to its service offerings of entertainment and music.

Markets, Products and Services

HMV is a big part of the music industry selling records, DVDs and CDs. It has recently began to sell fashion products, gadgets as well as books. It has a key presence in the music and entertainment industry both in the offline and online channels. It currently operates in major geographic markets in Asia, Europe and the US.

Performance

Its recorded pre-tax profits faced an 18 per cent increase in April 2010 making its profits for the year to be ?74.2 million ($111 million). It has a chain of 692 stores worldwide (Billboard Biz, 2011; (Guardian, 2011b).

PESTLE Analysis

Political

Political influence for HMV’s external environment and the record industry is in the form of actions towards piracy and unauthorized access to music online. Where some politicians ignore the menace, some take actions and this influences sales tremendously.

Economic

The availability of free music online has changed the industry dramatically causing sales to fall and retailers to cut down on prices (Konverge, 2010).
The entire industry has faced a downfall in sales of the major competition given by large entertainment companies and leisure companies which are offering substitute products such as iMusic (Inside Retailing, 2010).
But the demand for music exists nonetheless but the market has become extremely tough for brick and mortar high street music and video retailers who are still glued to conventional store designs and products (Guardian, 2011a).

Social

The decline in sales has forced record companies to consider downsizing which has raised a lot of social concerns.
People in search for cheaper prices and in fact free of cost songs are ignoring the menace of piracy and are unaware that some of the websites are selling the songs unethically and they have unauthorized access to the music they sell from major record companies. Thus, the companies are continually engaged in increasing awareness regarding piracy (Konverge, 2010).
This young generation has access to internet and is aware of the opportunities to find cheaper and free music online from music stores, thus, has created a large demand for technologically enhanced and internet based business and sales of record. HMV and other record retailers alike have been forced to analyse this market for its preferences are much different than the earlier consumers they had (Guardian, 2010).
New and emerging rap artists and other alternative musicians have brought foul and street language into music and they are selling records at a large level which is changing the entire music industry and influencing teenagers and children tremendously.

Technological

E-commerce requires cut-throat innovative and prompt strategies on part of the businesses like HMV to stay on top and offers a limitless pool of opportunities to do so. Such as the e-marketing tools of emails and online advertisements that HMV has been making good use of (Telegraph, 2010).
Doing business online means using a low price model which means lower profit margins for record retailers (Bright Club, 2010b).
Technology also has given way to piracy and unauthorized websites who sell music and CDs illegally and has drawn major concerns for many retailers as this is forcing their sales down even on the internet (The Daily Swarm, 2010).

Legal

Recent developments in the laws for illegal sale of music online and offline has given the record retailers some relief as the law enforcement agencies take hold of the matter but still actions are limited and there are many illegal sellers available online despite of the law.

Environmental

Record retailers have minimum influence from the environment. Environmental changes have influenced the packaging of CDs and now that the selling is done online and the music is transferred electronically fewer environmental hazards take place which keeps the record retailers off the hook (The Times 100, 2010).

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But engaging in green groups could be an added advantage for HMV as music companies continue to engage themselves for peace concerts as it creates goodwill for the company and a positive image in the minds of the consumers which lasts a long time.
Porter’s Five Forces Analysis

Level of Competition

The record sales have been recently suffering a serious decline. The market is largely occupied with aggressive competitors who are engaged in a price cutting war. The main rivals of HMV are other entertainment business which is largely expanding their businesses in diverse directions such as Virgin Megastores, and other independent shops. The leisure businesses and super markets are also HMV’s competitors which are driving consumers’ taste to other directions especially in seasons like Christmas or winters, as recorded by HMV’s marketing researches. Online music stores which are offering customers mp3 songs for free are also causing HMV and other major record retailers to consider lowering their prices down and enter into online selling and online stores and further enhance their e-marketing and promotional activities.

Bargaining Power of Buyers

Bargaining power of buyers is high. The recent technological advancements and internet revolution which have brought about the information age to its highest level, the power that record retailers attained previously have now had to lose it to consumers at a tremendous pace.

Threat of New Entrants

The whole record retail industry is changing and moving towards its online counterparts, thus, it does not seem like a fruitful industry to enter considering the brick and mortar store format which is largely becoming extinct. Online music selling presents a good opportunity for music record retailers as the future holds growth in this area but not for the physical brick and mortar store formats. There are fewer barriers to entry in this industry but having a strong brand image and recognition like that of HMV and iTunes is an added advantage (Billboard Biz, 2011).

Bargaining Power of Suppliers

There is low bargaining power of suppliers as large record retailers who lead the market set their own standards and prices and thus, control the cost of suppliers.

Threat of Substitute Products or Services

With the advent of technology and internet new forms of entertainment in music are gaining internet and attention of the consumers such as music in mp3 format available online for free as opposed to CDs and DVDs which were previously hit sellers. Music is being made available in more compact forms for the ease of the consumers and the retailers have to make sure they continually improve their service offerings to fit the changing tastes of the consumers.

SWOT Analysis

Strengths

HMV is a market leader in the music and record retail industry of UK. It has such a strong brand positioning and recognition that it can easily compete with US’s iTunes if it incorporates more ecommerce strategies into its operations (Billboard Biz, 2011).
HMV has entered in to diversified portfolios and ventured into emerging and growing geographic markets such as in Asia, US, Australia and other parts of Europe and other entertainment and leisure markets such as fashion, cinema and books. This has expanded its customer share.
HMV has launched its website operations whereby online purchasing, gaming and ticketing takes place allowing customers to shop with ease and enjoy doing so with maximum contact with the company (The Times 100, 2010).
HMV effectively relies on e-marketing strategies to interact with customers online via email specifically. This promotional campaign has increased the click rate by 600 percent resulting in 765 per cent more transactions on the online store of HMV (Guardian, 2011a).
HMV’s acquisition of Mama Group has also enabled it to get a strong hold in the entertainment industry in the UK as consequential to this the share price of HMV rose tremendously.

Weaknesses

The biggest dilemma facing HMV is to encourage customers to still purchase from its brick and mortar stores. Customers are less convinced to do so as they find it easier, better and cheaper to purchase the same music online (Billboard Biz, 2011).
Sales went down 2.4 per cent in the last 12 months, though profits are being attainted, which is a signal that there is a large audience still looking for entertainment which can be addressed through the cinema and other forms of live entertainment and the music selling can be shifted to online counterparts for enhanced profitability in future (Guardian, 2010).

Opportunities

Having opened up its website operations, book store and cinemas across London, HMV is expecting a noticeably large increase in sales in the coming session in 2010. Currently its sales total ?8.1 million ($12.1 million) coupled with an operating loss of ?200,000 (-$300,000) after having taken over Mama Group. This shows clear signs of growth for the company in future (Billboard Biz, 2011).
Expanding into the niche market segment of health and fitness DVDs via the online channel is also another viable opportunity.
Technology has advanced at a tremendous level and rate and has created new directions and opportunities for businesses through which they are revolutionizing their performance, quality of services and customer relationships (Telegraph, 2010). HMV has the opportunity to make its services more enhanced using internet by offering downloadable TV and film selling online (Bright Club, 2010a).
Entering into the cinema industry has also its great advantages that are open to HMV. The cinema industry is booming in UK and the numbers are off the charts. Based on UK Film Council’s calculations, the cinema sales have risen from 3.5% to ?850m, which only indicate a great growth potential for HMV in this area (Guardian, 2010).

Threats

There is cut throat competition for HMV from leisure companies, entertainment companies and from supermarkets. Along with that the consumers’ preferences are changing much too fast to get a grip on but the online orientation of customers is here to stay for some good time which can be made use of effectively.
Piracy and unauthorized selling of music online and offline is vastly destroying sales of records for independent record retailers like HMV for which quite less action can be seen.
The entire UK record industry is currently facing a massive decline of sales and that is partly because of consumers’ demand for free music and the massive spread of pirated music industry which is growing day by day.
Strategic Recommendations

Ansoff Matrix

Based on the Ansoff Matrix, the following viable strategic directions are open for HMV considering the present situation in the external market and the internal resources of the company (Kotler and Keller, 2005).

Market Development

Taking on the market development strategy, HMV’s most prospective profitable avenue is the online marketing channel. The company can enter into new geographic and product markets for records and DVDs via the online channel. Expanding into the niche market segment of health and fitness DVDs via the online channel is also another viable opportunity within the internet music retail industry that can allow the company to expand its customer share globally (All Business, 2011a).

Entering into new geographic markets such as Japan and other parts of East Asia are also options for HMV. However, in order to profitability penetrate in these markets, innovation is required on part of the company.

Product Development

Product development is another strategic direction. HMV can make its services more enhanced using internet by offering downloadable TV and film selling online.

Diversification

HMV as an extension to book selling can introduce e-books to its online store allowing the retailer to diversify into e-tailing of e-books.

Conclusion

HMV (His Master’s Voice) is UK’s largest, oldest and most popular record retailer which has excelled in the industry. It has around 692 stores in Asia, Australia, US, Canada and Europe, where it specializes in selling CDs, DVDs and other forms of music products. It has made its services, marketing and promotion and the whole consumer purchase experience highly technologically enhanced whereby allowing customers to have a wholesome and enjoyable shopping experience. HMV uses the ‘Dog and Trumpet’ technique in marketing and promotion of its brand by infusing the emotional attachment and flavor that has been entailed with its heritage. HMV’s customers include young and old and people of all ages and now that has had its services established worldwide it offers no geographical limit to its service offerings of entertainment and music. But being the oldest and strongest in the market does not spare HMV from the forces of the external environment.

The industry is changing rather dramatically owing to technological changes and shift of consumer preferences towards more free and more online music availability. This has caused sales to fall and has forced the record retailers to cut down prices. Owing to technological changes and the advent of internet consumer preferences are fast changing and they prefer cheaper and freely downloadable music online. For this reason sales have gone down and the retailers in the industry have had to cut prices to cope up. Other than this, other entertainment markets have been growing giving an opportunity to HMV to expand its operations and offer a complete entertainment package. Such has been evident in its recent venture into cinema industry and fashion industry which are largely being accepted and favored by its existing and potential customers (Billboard Biz). To give customers an enjoyable experience HMV offers live gaming, Tshirts, and other souvenirs in the stores to make them return home smiling. Asian markets have been growing considerably high over the last years and HMV in Japan is facing a tremendously high profitable quarter.

They have to maintain demand of their CDs and DVDs through lowering the prices, and also at the same time investing in online selling to attract consumers there. The entire industry has faced a downfall in sales and this is not because of the worldwide economic crunch but it is primarily because of the major competition given by large entertainment companies and leisure companies who are offering substitute products to consumers that they are happily purchasing to replace CDs and DVDs that HMV has been selling for years (Guardian, 2010). Though its recorded pre-tax profits faced an 18 per cent increase in April 2010 making its profits for the year to be ?74.2 million, it still needs to increase its sales of records, and if going online completely for that purpose is the solution left so be it (Billboard Biz, 2011). Technology has advanced at a tremendous level and rate and has created new directions and opportunities for businesses through which they are revolutionizing their performance, quality of services and customer relationships. Doing business online means using a low price model initially. As sales have went down as customers seek better and cheaper offers, free or cheaper music has to be made available online for HMV’s customers to enjoy and to develop strong loyalty. Other than online shopping from HMV, it is currently engaging in allowing MP3 to be made available in store where customers can download there and then straight away for those who do not have access to internet. In this regard, HMV stands as an innovator. HMV also has the opportunity to make its services more enhanced using internet by offering downloadable TV and film selling online and continue using e-marketing tools to attain and retain customers.

Taking into account the findings of the analysis, the most viable strategic option for HMV is market development. Most prospective profitable avenue is the online marketing channel. The company can enter into new geographic and product markets for records and DVDs via the online channel. Entering into new geographic markets such as Japan and other parts of East Asia are also options for HMV. However, in order to profitability penetrate in these markets, innovation is required on part of the company.

References

All Business. (2011a). HMV. Available at

http://www.allbusiness.com. Accessed 3 July 2012.

All Business. (2011b). Waterstone’s HMV. Available at

http://www.allbusiness.com. Accessed 3 July 2012.

Billboard Biz. (2011). HMV recorded rise in Sales. Available at

http://www.billboard.biz. Accessed 3 July 2012.

Bright Club. (2010a). Benefits and Drawbacks of E-Commerce: Case Study of HMV. Available

at http://www.brighthub.com/office/entrepreneurs/articles/50145.aspx?p=2. Accessed 4 July 2012.

Bright Club. (2010b). HMV Case Study: Development of Ecommerce Strategy. Available at

http://www.brighthub.com/office/entrepreneurs/articles/50145.aspx?p=2. Accessed 4 July 2012.

Cream Global. (2010). HMV Case Study: The Value Long Tail. Available at

http://www.creamglobal.com/search/17798/18337/the-high-value-long-tail/ Accessed 4 July 2012.

Design Council. (2010). Designs to Overcome a Downturn: Case Study of HMV. Available at

http://www.designcouncil.org.uk/Case-studies/Designs-to-overcome-a-downturn/HMV-Group/ Accessed 3 July 2012.

Experian. (2010). HMV Case Study. Available at

http://www.experian.co.uk/assets/resources/case-studies/HMV_V4.pdf Accessed 4 July 2012.

Guardian. (2010). HMV Waterstones Trading. Available at

http://www.guardian.co.uk/business/2010/jun/30/hmv-waterstones-trading. Accessed 4 July 2012.

Guardian. (2011a). HMV Group. Available at

http://www.guardian.co.uk/business/. Accessed July 2012

Guardian. (2011b). HMV Curzon Artificial Eye Cinemas. Available at

http://www.guardian.co.uk/business. Accessed 4 July 2012.

Inside Retailing. (2010). HMV UK Music to the Eyes. Available at

http://www.insideretailing.com.au/Latest/tabid/53/ID/8073/HMV-UK-Music-to-the-eyes.aspx. Accessed 3 July 2012.

Konverge. (2010). HMV Case Study. Available at

http://www.konverge.com/pdf/HMV_cs.pdf. Accessed 4 July 2012.

Kotler, P. and Keller, K. (2005). Marketing Management. Prentice Hall.

The Daily Swarm. (2010). Enlarging Music Retails Product Base HMV. Available at

http://www.thedailyswarm.com/headlines/enlarging-music-retails-product-base-hmvs-profits-18-live-venues-ticketing-dvds-tech-fashion/ Accessed 3 July 2012.

The Times 100. (2010). Case Study: HMV Building on Brand. Accessed 4 July 2012.

http://www.thetimes100.co.uk/case-study–building-on-brand–24-23-3.php

Telegraph. (2010). HMV set for Fashion Roll Out as Sales Fall. Available at

http://www.telegraph.co.uk/finance/newsbysector/epic/hmv/7650267/HMV-set-for-fashion-roll-out-as-UK-sales-fall.html. Accessed 4 July 2012.

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