Pepe Jeans Case
...contributed quite a high proportion of market shares were Levi, Wrangler and Lee. In addition, new brands such as Easy, Zeus were now appearing on the market and were more fashion. The “fashion” market was more competitive; many companies were trying to emerge into this market and targeted the high spending power of younger consumers group. However, Pepe Jeans had became much less of a “trend-setter” than before. To keep this strength, Pepe Jeans should maintain its quality and keep promoting its new fashion design in each season. Although Pepe Jeans is a British local brand, constant promotion is necessary to leave a deeper impression of brands in consumers’ minds. Pepe Jeans might put more effort on its promotion or redevelop the promotion strategies and try to catch the loyal customers back. Apart from promotion strategies to attract younger consumers, distribution channel management is also important to offer an opportunity to stay Pepe Jeans a sustainable competitive advantage. By looking at the sales of jeans by outlet (Table 1, Appendix B), independents and multiples has occupied more than 60% of market share. As a result, these two kinds of shop were very powerful on jeans selling. In order to succeed in jeans market place and to compete with other major players, Pepe Jeans should maintain a good communication and close relationship with these outlets. The existing distribution system of Pepe Jeans has been demonstrated in Figure 1 (Appendix A). This design shows that Pepe Jeans kept close contact with its independent retailers by working exclusively with a group of 10 agents who were self-employed. Because of long time cooperation with independent retailers, all agents had come to know and maintained a good relationship with the retailers. Pepe Jeans also employed a Key Accounts manager to deal directly with the buyers of the ten multiple customers which had 1500 outlets nationwide. Pepe Jeans used Hong Kong based manufacturer in order to keep low cost. Besides, company developed close working relationship with the manufacturers so it could achieve consistency, high quality product and delivery reliability. The causes of conflict between Pepe Jeans and its retailers were as follow; first, expectation difference occurred due to the policies of Pepe Jeans that it did not keep any finished goods. However, retailers expected Pepe Jeans to keep the inventory for the flexibility of supply. The other conflict was the ordering system. Retailers had to order six months in advance and could not change or cancel the order so they were unhappy with the existing policy. In other words, retailers were expected the system to be more efficient and flexible. Second, the communication difficulties in channel, some retailers complained that the telesales system was inefficient to deal with their problems and also it was hard to track the delivery. Those were the points that upset the retailers which brought a negative impression to Pepe Jeans that did not look after its channel members. In order to have long term success in sales growth, a good distribution channel management is important to offer unique opportunities to develop a sustainable competitive advantage which is hard to imitate by the competitors. Channel design structures In this section, three channel design structures have been designed to match up with the context of the case decision scenario (Figure 2-4, Appendix A). All of the channel designs are dominated with three common characteristics. First, all of them are designed as an indirect channel and involved with 3 levels of channel members. Second, they are designed to fit the goal of Pepe Jeans which emphasize on creating strong relationship with channel members. Lastly, selective distribution and pull strategy are used in order to protect its strong brand image in end-customer’s mind. For channel design structure 1 (Figure 2); Pepe Jeans make contract with merchant wholesaler who has high quality and large number of salespeople in order to deal with independent retailers and multiples effectively. The company will support wholesaler to create strong relationship with retailers. The wholesaler will keep close contact with both the retailers and Pepe Jeans, and perform the information flow from one to another. As some retailers still preferred to deal with Pepe Jeans’s “streetwise” agents, Pepe Jeans will keep the existing agents to deal with the independents. In order to have an effective sales control system, Pepe Jeans will support wholesaler to create Electronic Data Interchange (EDI) which retailers can check stock available at wholesaler, ordering process status and make order on-line. In addition, Pepe Jeans will promote online shopping which allow end-users to get order directly from wholesalers. By solving the excess stock that could not be sold out after each season, Pepe Jeans will allow wholesaler to sell its stock product through its discount stores. In order to minimize intrabrand competition, Pepe Jeans would set the policy with the wholesaler by having outlet stores located in vacation areas and emphasizing on product lines which are not sold in regular retail stores. It is important that Pepe Jeans can reduce distribution cost by delivery to the wholesaler instead of directly to each retailer. Then, the company can offer the lower price to wholesaler which causes retailers to get the satisfying profit as before. The advantages of this structure are the company can push the stock holding risk and distribution cost to wholesaler. Moreover, the large number of salespeople from wholesaler can reach the increasing number of retailers effectively and closely. Finally, retailers can also contact with wholesaler more easily through EDI system. The disadvantage is that conflict between agents and merchant wholesaler in terms of dual competition. The other shortcoming is that the salespeople of wholesaler may not know the markets as good as the agents. For channel design structure 2 (Figure 3); Pepe Jeans make contract with manufacturers’ representatives to deal with indirect retailers and multiples and also keep close relationship with retailers by those representatives. The newly introduction of EDI system can solve the problems that retailers can check the order processing status and ordering on-line efficiently. The advantage of this structure is the company only need to pay commission to those representatives if they can generate sales. Therefore, Pepe Jeans does not have a high fixed cost from employing its own sales forces. Moreover, large number of manufacturers’ representative salespeople ca...