Lululemon Athletica Inc. Comprehensive Case
- Define the generic business-level strategy used by Lululemon. Who is the targeted customer? What customer need does the company satisfy? How does the company use its competencies to satisfy the need?
Lululemon not only focuses on selling goods, but it also aims at establishing healthy relationships with its customers and community in general. The company’s customer care provides customers with exceptional service from the time they enter the premises. In this regard, their approach results in the creation of a good reputation. By doing so, lululemon influences its current customers to bring more consumers to purchase its products. For instance, in a situation where customers walk into Lululemon premises without an idea regarding their preference, the employees offer the necessary assistance to help them in making the right choice that aligns with their needs.
Based in Vancouver, Canada, Lululemon athletic offers high-quality products at exceptional prices. Among the major products provided by the company include the yoga pants. While most competitors offering the product sell it at twenty-five and fifty dollars, Lululemon offers the product for prices ranging from seventy-eight and one hundred and twenty-eight dollars. In this case, it appears that the company provides its products nearly three times the prices of its competitors. While these prices may be viewed as high as compared to the competing brands, the company sells its stock at a faster rate. In fact, the yoga pants provided by Lululemon sell at a faster rate that makes it challenging to keep up with the demand. As a result, the fact that customers opt for expensive products rather than the cheap alternatives brings many questions regarding the quality offered by the Lululemon. Notably, Lululemon’s goal is not only to make customers as sales associates but rather offer appealing services.
Lululemon’s customers are individuals seeking not only quality products but also exceptional services that align with their expectations. The types of customers purchasing Lululemon’s products are individuals leading physically active lives while seeking to attain a balance. The most important factor however is that Lululemon’s culture is unique in a way that other competitor brands cannot imitate. Although Lululemon focuses on upholding its culture, it does not ignore the importance of delivering quality products. Thus, the organization uses its competencies to provide both quality products and friendly culture to meets the needs and preferences of its customers. Put simply, the company embraces a good relationship between employees and customers to offer a unique experience to its customers, thus differentiating itself from its competitors. By sharing useful information regarding clothing, the company’s employees create trust and loyalty among the customers.
- What industry is Lululemon competing in? Analyze the competitive forces in the external environment using Porter’s five forces model.
Lululemon is competing in the athletic apparel industry. One of the signature products offered by the Canadian based company is yoga pants. The company has seen an increase in popularity, thereby helping Lululemon to gain above-average earnings from its sales. Porter’s Five Forces model can be applied to provide insights regarding Lululemon’s competitive environment.
The threat of New Entrants
Firstly, new entrants in the athletic clothing industry create an opportunity for innovation and new production processes by lowering prices, cost-cutting, and creating value for customers. Lululemon has established a close relationship with its customers, thus gaining a market share in the industry. Thus, new entrants would not significantly affect the company’s profitability. The continuous innovation of new products attracts new customers amid the competition from new entrants, thereby giving old consumers a reason to purchase its brand.
Bargaining Power of Suppliers
The number of suppliers in the industry where Lululemon operates is comparable to the buyers. In this case, suppliers have limited control over prices, thus making their bargaining power weak. The low switching costs of the products offered by suppliers makes it easier for Lululemon Athletica to switch suppliers to suit their needs. Thus, the profits of the industry are determined by the pricing of the suppliers. Lululemon Athletica Inc can sustain its competitive advantage by purchasing cheap raw material, thus reducing the costs of making its products.
Bargaining Power of Buyers
The suppliers within the industry where Lululemon operates exceeds the number of firms producing the products. Since buyers have a limited number of firms to purchase products, it makes the buyer’s bargaining power a weaker force within the industry. Since the buyers make frequent purchases, the bargaining power of buyers is a weak force. Lululemon Athletica Inc can use strategic marketing techniques to build the brand’s loyalty.
Threat from Substitute Products
There are limited substitutes for Lululemon’s product in the industry. While the company’s products are offered at a higher price compared to its rivalry, customers are less likely to opt for substitute products. In this case, the customers’ loyalty enables the company to sustain its competitive advantage without losing its revenue. Lululemon produces high-tech products while providing exceptional customer services. Therefore, Lululemon can provide high-quality products by differentiating its products, thus retaining its customers.
Rivalry among the existing players
While the industry experiences competition from companies like Adidas, Nike, and Under Armour, Lululemon’s understanding of the target market differentiates it from other brands. The other companies also offer similar products at a lower price compared to Lululemon. Given that the competitors offer quality products at lower prices, the rivalry is a stronger force within the industry. However, Lululemon maintains a market share through its unique organizational culture. The company provides products that align with the customer’s needs and cultures of the community. Lululemon Athletica Inc can survey the demand in the market to prevent overproduction.
- Discuss the advantages and disadvantages of Lululemon’s small size relative to its larger competitors. Be sure to address issues related to governance, resources, and structure.
Today, larger companies are countered by various issues with governance. This challenge is attributed to the long chain of command that deters managers and supervisors from monitoring the productivity of every worker. Compared to its competitors, Lululemon has a relatively small size. Thus, the company is able to monitor all its employees, thereby reflecting their efforts on the profit levels. Additionally, the small size reduces the number of expenses incurred from hiring a large number of employees as well as maintenance costs. The fact that the company has few shareholders makes it easier to make faster decisions. Lululemon has a simpler structure than the competing brands like Adidas and Nike, thus making it able to manage.
While the company’s small size creates multiple advantages to create a competitive advantage in the industry, it results in less production than larger companies. Notably, Lululemon records more profits than large competitor companies. However, Lululemon faces greater risks in a scenario where large companies decide to utilize similar strategies, Lululemon may lose its market share and therefore record lower earnings. For instance, companies like Adidas and Nike have managed to expand their markets to numerous parts of the world because of their large sizes. In this case, Lululemon is only protected by its use of organizational culture. However, the company can lose its consumers if they deem the substitute products as better than Lululemon’s brand.
Further, Lululemon has few stakeholders as compared to large companies. In this case, the company can find it difficult to raise capital and support it during a crisis. Also, in a situation where the company records lower profits, the small size of the company can make it challenging to finance its operations due to the lower number of shareholders. Unlike Lululemon, large companies like Nike and Adidas are able to recover from a crisis with ease due to their large number of shareholders. Thus, Lululemon’s small size can create a disadvantage during a crisis since competitor brands would recover at a faster rate, thus taking a large market share. Large companies like Nike find it simpler to acquire high-levels of talent since they attract many candidates during recruitments. However, small firms like Lululemon have fewer employees, thus limiting the number of talented employees in the workforce.
- What challenges will Lululemon face when expanding into Asia? Focus on factors such as pricing, brand awareness, positioning, customer acquisition, distribution, etc. Within these markets address the differences in culture/business practices and recommend a global strategy for Lululemon.
In this case, Lululemon faces numerous challenges in expanding its market to Asia. The main factors that will constraint Lululemon include brand awareness, pricing, positioning in the market, distribution, and customer acquisition. Firstly, the company will face a pricing problem due to the existing athletic clothing brands in Asia. Consequently, international companies like Nike and Adidas have already established a good market share, thus making it difficult to convince consumers. The most notable challenge however is that Adidas, Nike, and local companies provide their products at lower prices than Lululemon. Thus, the lower prices of competing brands would result in lower sales.
Further, creating brand awareness in Asia would be a difficult and expensive task. Notably, venturing new markets requires a company to raise awareness and attract potential customers. Today, many consumers tend to stick to familiar brands, therefore making it difficult to trust other companies. Although a company may attempt to attract customers in the new market, effective strategies and advertisements would be costly for Lululemon. Additionally, this would make customer acquisition difficult to achieve, given that individuals have to trust the brand. Notably, the company sells its products at a higher price than other firms. In this case, it would take a lot of resources to establish a working relationship with its customers.
On the other hand, the distribution channels of the company would be difficult given the lack of an existing network. Therefore, the venture would be countered with numerous uncertainties attributed to transportation costs. The management would be concerned with covering the operating costs caused by a lack of proper distribution channels. While venturing a new market in Asia, Lululemon will be faced with a dilemma in positioning its stores. In this case, the company will ensure it does not position its stores close to the competitors as well as too far from the target customers.
Depending on the Asian cultures, the company will face a challenge in establishing an effective organizational culture. Thus, it will be difficult to counter competition from rivalries like Nike and Adidas. Therefore, Lululemon will be compelled to conduct research regarding the community to be able to establish a culture that aligns with the needs of the customers. Additionally, venturing in the Asian market will force Lululemon to lower its product prices to align with the prices of competing brands. Given its small size, Lululemon will experience financial difficulties due to the lower levels of revenues recorded in the new markets.
- What ethical dilemmas/issues have Lululemon faced over the last few years? Analyze the impact of the ethical issues by addressing the stakeholders involved, consequences of the ethical issue, and laws/standards that are relevant to the issue, if any. How could Lululemon have handled these issues differently?
The most recent dilemma that Lululemon has faced is the on4e that occurred in March 2013. On this date, Lululemon availed black luon yoga pants that would become sheer as soon as the individual wearing them bend over. While the products make seventeen percent of women pants, Lululemon was forced to recollect the product. This issue caused a lot of concerns not only to the investors but their customers. As a result, investors opted to sue the company claiming that Lululemon had intentionally concealed blemishes on the pants. On the other hand, the issue had a huge impact on the company’s culture that aims at meeting the expectations of its customers. As the customers had initially put their trust in the brand, they were disappointed by the handling of the issue. In this case, consumers lost faith in the brand because they expected to get the value for their money. The company was therefore obligated to provide high-quality products and services.
The dilemma facing the Lululemon had a huge impact on the shareholders and its productivity. Notably, customers and investors tend to consider the value of their purchases. Put simply, customers were concerned with purchasing low-quality products at expensive prices. In response to the issue, the chairman of the board, Chip Wilson stated that the sheerness of the fabric was attributed to the women’s body. Additionally, he noted that women tend to purchase small sized pants, thus causing the sheerness. Instead of calming the situation, Wilson’s remarks caused more outrage wrong many critics who viewed it as a sexist comment.
While handling the issue, the company forced the chairman to step down. In this situation, it was imperative to make appropriate decisions that would benefit all the involved parties. Notably, a poor decision would put the organization, shareholders, and customers at risk. While the chairman’s remarks were not intended to be sexist, they were negatively understood by critics. Alternatively, Wilson should have structured his comment in a way that would not offend the involved parties. Although the reasoning behind the chairman’s comments sounded genuine, it would have been better to carefully design the remarks. This aspect was damaging to the company’s culture that advocates for serving the community and establishing trust and respect between the two parties. The fear of associating with a sexist organization would see a decline in sales. The breaking of trust would also cause issues when hiring new employees, since women may opt to boycott the recruitment.
Reference
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