Pricing Strategies and Tactics - Report - OROTON GROUP PDF

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In the report, the Oroton’ handbag is main category that we aim for among their variability of accessories. What we found about Oroton is that they had gained fairly successes at the beginning of stage and even became an icon in fashion world. However, it then was more and more problematic and lost their market share because of factors such as competition, value proposition and new trends. In the customer’s perspective, they see Oroton products as old, classic but good quality and affordable price whereas Oroton brand positions itself as high-luxury product. Hence, it created a problem between customer perception and brand value positioning. Otherwise, the entry of giant international brands like Ralph Lauren, Michael, Coach, Gucci, Supreme, LV into market has formed ad high competition and taken customer away. The remarkable event that marked a turning point of Oroton was the loss of contract with Ralph Lauren distributor then got smashed in market share. Acknowledging that, some new pricing strategies are pricing for market penetration, psychology pricing and pricing skim which are proposed to help Oroton overcome their problems and improve its current pricing strategy.

1.0. Introduction The fashion industry has significantly developed over the last 20 years when the boarder of industry is opened (Djelic and Ainamo 1999). In the late 1980s, several big retailers managed to capture the huge market share in fashion industry and increase the competition levels in the market (Barnes and Lea-Greenwood 2006). Due to the high level of competition, other smaller retailers switched from producer-driven approach to buyer-driven approach in order to survive the competition. This created a unique value driving from the integration of the manufacturers with overseas factories in combining high-value research, design, sales and marketing. The infrastructure of fashion apparel industry was illustrated with a continuous development around the late 1980s with an emphasis on quick response promotion through quality, delivery and speed to market while keeping the low costs. Since then, the sourcing manufacturing and processes in clothes industry to over-sea places for seeking low labour costs became a trend and created cost advantages for smaller brands to compete.

1.1. History Oroton has established as an high-luxury Australian accessory brand and founded in Sydney since 1938 by Boyd Levy (Oroton, 2019). Rount (2015) proved that Oroton began as an importer of luxury European fabrics for the fledgling Australian industry before branching out into the leather goods. In the early 1951, Oroton has recognised the potential of metallic industries in German. This becomes a big hit for Oroton as luxury symbol for women which named “relaxed glamour”. Between year 1960s and year 2006s, Oroton aimed to improve the variety of products and expand the industry through highly reputation with “must-have” for young generation, especially for disco girls, multiple social methods, also Oroton co-operate with Polo Ralph Lauren and become Oroton group which listed on Australian Stock Exchange. After all, this luxury industry has continued to expand the reputation and collaborate with another big businesses to become trustworthy, profitable and reduce unnecessary fail in 80 years established.

2.0. Major Players There are numerous competitors in the luxury goods market, especially in the handbag and purse market section where Oroton’s main product is located in the market segment. Furthermore, from Australia alone there are several competitors that competes with Oroton in the market such as, Respiro Studio, Sans Beast, The Horse, Mimco, Raela, Rylan, Status Anxiety, The Daily Edited, and State of Escape (Marie Claire, 2019). Moreover, there more outside brand that also competes with Oroton in the Australian Market such as, Ralph Lauren, Michael Kors, Coach, Louis Vuitton, Gucci, Chanel, Burberry, Hermes, Louboutin, Versace, Dior, Ferragamo, March Jacobs, Prada, Saint LAurent PAris, Armani, Tom Ford, Doce & Gabana, Jimmy Choo, and many more (Oban International 2017). Compared to Oroton, those brands mentioned above, many of them are the original player of luxury brands dated from the early 20th Century. Additionally, they already established themselves as the leading forces of luxury brands in the market.

3.0. Market Share Estimates Furthermore, the luxury good market share has changed significantly throughout the years, with many brands going up and down the rankings. According to a research conducted by Oban International (2017) the top 10 international luxury brands make up nearly 80% of the market share, where the top 10 brands are Ralph Lauren (19.2%), Michael Kors (18.5%), Coach(12.0%), Louis Vuitton(9.5%), Gucci(5.3%), Chanel(4.2%), Burberry(4.1%), Hermès(2.1%), Louboutin(1.8%) and Versace(1.7%). A graph of the overall luxury market share can be seen below.

Figure 1.0 Source: obaninternational.com As it can be seen from the chart above, Oroton is not mentioned in the top 20 luxury brands in the world, Oroton’s market share is within the 11,7% of the rest of the luxury brands around the world.

4.0. Product Differentiation As it has been mentioned beforehand, Oroton competes in the luxury goods industry, where the types of products being sold are similar, fashion items ranging from items such as handbags, clothing, jewelry and wristwatches. In this case study, we will be focusing on a specific type of product, and that is fashion bags for women. In order to at least stay in the competition, Oroton has to differentiate its products and services from other luxury goods retailers. Reported by Bleby (2014) Oroton’s differentiation strategy lies in the design of its physical stores, utilising lighting techniques, colour schemes and use of raw items that have luxury appeal such as marble and concrete to bring out the ‘Australian’ characteristics that the Oroton brand is willing to convey. Oroton also brings Australian characteristics to its products, even though some of the elements do reflect other brands

such as Gucci, Prada and Louis Vuitton, the differentiation lies in the “Australian-ness” of the brand (Vantage Performance, 2012). Additionally, Oroton plans to explore other product categories and apparel under the new creative direction of Sophie Holt, who previously worked for Country Road. Oroton is also planning to focus on how to utilise technology to increase online presence and offer enhanced omni-channel offerings (Blake, 2018). With a new capital structure, Oroton is off for a fresh new start in revitalising the brand while keeping the “Australian-ness” of both its products and services. Overall, Oroton lacks a strong point of differentiation in its products. Other luxury brands such as Gucci, and Louis Vuitton has their own unique characteristics and design to their products, an illustration comparing the bags can be seen below.

Figure 2.0. Left to right: Gucci, Louis Vuitton, Oroton

source:images.google.com

5. Factors influence 5.1. The loss of dist In June 30,2013 Oroton lo

Ralph Lauren and got smashed in

the stock market trading as the

more than 45% of company sale

(Colin,2012). The loss of the licen

nd caused a substantial impact on

Oroton supply chain. This would

n’s item in the market and reduce

the accessibility of customer to its

o recover the loss is opening some

gap stores in Sydney and expanding to Asian market. However, cost to operate stores and maintain brand image itself is much higher than having partnership with high reputation distributor like Ralph Lauren, therefore it increased the cost of production and consequently reduce the quantity of product.

5.2. Sources of raw material Oroton sources materials from all over the world including Australia, Italia, German, Korea, Vietnam, China and India. The benefit of sourcing material oversea will help Oroton to reduce the cost of production and take price advantages. However, the government policies can affect the supply chain through taxes, regulations and tariffs. For example, the commercial war between China and America recently have caused a serious problem for technology companies in both countries. Therefore, the supply chain of Oroton will be heavily affected if there is an increase in taxes or tariffs of Australia on those countries that partner with Oroton or in converse.

5. 3. Technological factor Factors affecting the supply of Oroton in term of technological factor include availability of resources, demand and production. For example, the shortage of certain material such as leather will force manufacturers to produce less or sell other substitute leather products. The new clothing collection of rivals also affect Oroton to discontinue doing their current clothing lines and produce new one to catch up with new trends on the market. Otherwise, it will require company to add more or enhance equipment and facilities to maintain the standard and quality of new products.

5.4. Labour limitation In the fashion world, it is more and more popular that companies offer a product customisation service to tailor their products especially for everyone. Oroton also applies this strategy into their model with the variability of options. This new marketing strategy has both negative and positive aspect. In the positive side, customising products lean towards interests and preferences of customer, therefore it will meet the customer expectation and help Oroton to build loyalty of customer. In the other hand, the product customisation quality bases more on handy and skilled designers rather than machine. The fewer workers a company has, the less product it produces. Hence, it may limit the quantity of product on market and unable to fulfill customer satisfaction if there is a large demand for the market.

6.0. Demand factors relate to the nature of consumers

6.1. Price Handbags has a wide variety of prices, from as low as $29 to an astonishing $5,000 e.g Large Sac De Jour carry all bag in black grained leather made by Saint Lauren (Saint Lauren, 2019), Oroton themselves set their handbags prices from as low as $59.95 and up to $650 undiscounted price, as according to their website currently they are having a massive discounted price for most of their handbags in their outlet section and 30% off for their regular section (Oroton, 2019). Currently, the bags that are priced around 100$ or below is the most looked online search demand (F Trend, 2016), it can be concluded that most of the customers are currently looking for a cheaper designers bag solution, which is why Oroton discounted most of their handbags product.a

6.2. Income of consumers Currently the handbag market consumers are dominated by high income consumers numbering 40,5 % of the total consumers for handbags, while in the middle are the medium income segment with 32,9 %, and lastly 26,6% from the lower income segment (Statista, 2019). Although the market shows that most consumers comes from the high income area, several articles and news suggested that consumers trend are shifting to a more functional type of bag such as duffle bags, tote bags, and backpacks which cost 100$ or below.

Source: https://www.statista.com/outlook/358/100/bagsaccessories/worldwide#market-revenue

6.3. Tastes or preferences of consumers Currently as mentioned above, customer are looking for handbags that are priced at $100 or below (F Trend, 2016), which means customer are now more design oriented rather than brand

oriented, especially millennials (F Trend, 2016). Furthermore, for the last several years, women’s handbags business has been in a downtrend situation, where sales went down for about 8% according to Forbes (2018), as a result of customers switching trend to product such as duffel bags and backpacks as it is considered more functional rather than a conventional handbags as the feature are more relevant to the outdoor lifestyle (Forbes, 2018)

6.4. Expectations With the current state of the market where consumers are demanding a more functional bag with cheaper price regardless of their income or age, it can be expected that the trend will stay for a long time, as people nowadays are more into outdoor lifestyle (Forbes, 2018), and the more expensive branded handbag product for women will still be in a state of a downwards trend, as mentioned by FTrend (2016). Furthermore, it can be predicted that many of branded company such as Ororon will try to keep up with the current market state by launching their own duffel bag, tote bag,fanny packs, cross body bags, and backpacks, while reducing their focus to handbags (Forbes, 2018).

6.5. Prices of related goods or services With the rise of popularity for functional bags such as tote bag, fanny packs, crossbody bags, backpacks, and duffel bag, it crashed the sales of handbags from branded company, such as Oroton. As a result, according to Oroton (2019) website, they are having a massive mark down of items from 30%-70% from their original price, as a result of the rise of functional bags, although they already launched their own line of functional bags several of them are markdowned as well (Oroton, 2019). In addition, as mentioned before consumers nowadays prefers an inexpensive type of bags, however it is understandable that Oroton still viewed themselves as a luxury brand, therefore it is normal that they price their items at a high value.

7.0. What are the distribution channels for your product or service? By using the primary research, a questionnaire was conducted consisting of five questions that was administered in the form of focus groups, mostly come from Millennials. Two focus groups were asked to participate in the questionnaire that understanding the ongoing activities of the company. As receiving respondences, there are divided into 4 sections of distribution channels. Questions can be seen in appendix 1.

The first distribution channel is retailers or can be called as brick-and-mortar, which can be defined as a traditional business that offers products and services to its customers face-to-face in a store. It is reasonable provide the key performance indexes to improve the interaction between customers and sales/sale assistants. The answer collected indicated that Oroton has issues with the price discrimination to compete with other brand and the poor customer service. The respondents pointed out that the price was out of reach of many Millennials. With fast fashion dominating the retail landscape, young customers have become more interested in either owning many bags (Singer, 2017). Therefore, the participants recommend that Oroton utilize some sort of well-training staff and pricing strategy such as consistency, entry level, digital, etc. That will provide an indication of overall distribution channel areas for future improvement. The second distribution channel is online shopping which may become the most significant channel to appeal customers in the future. Due to economic growth, digital marketing has been identified as a potential form to spread information through social networks and media platforms including Facebook, Twitter, Instagram, Youtube, etc. The other respondents indicated that Oroton currently have issues in time intensive, trustworthiness and security issues. This is because of Oroton haven’t taken the step forward in remotely monitoring the process advertising management. Finally the respondents recommended that Oroton should look for a solution that allows the company to be able to set up the limitation of using social marketing methods. Moreover, to improve the quality of the digital marketing process, it should involve collecting information to narrow unnecessary risks and increase the reputation in long-term building.

8.0. What are the current pricing practices for your product or service? After analyzing Oroton’s online shop, it can be seen that Oroton applies value-based pricing as opposed to cost-based pricing. As such with the majority of businesses in the fashion industry, Oroton determines the prices of its products based on the perception and valuation of customers upon the products. As it has been discussed before, Oroton lacks brand image and the positioning of Oroton leans towards the middle class goods instead of luxury goods, as it can be seen in Oroton’s website, the most expensive price for a bag is less than $700, which is a result of customer’s perception of Oroton as a semi-luxury goods retailer.

9.0. How does your product or service engage in price discrimination? Oroton engages customers by using 3rd degree price discrimination strategy, that is by targeting different customer groups. Oroton charges different prices for normal, online and outlet shoppers. Normal shoppers are shoppers that shop at Oroton’s usual brick and mortar stores in

Australia. While online shoppers shop via the Oroton website and outlet shoppers shop at several factory outlets located in several areas in Australia, for example, Birkenhead Point Factory Outlet. Normal shoppers are charged the normal price for any of Oroton’s products, and online shoppers are eligible for discounts programs that are only available via the online shop.

As for consumers that prefer shopping at factory outlets, Oroton sells their products at a significantly lower price point when compared to their normal price. Almost every product being sold is on a type of sale of promotion, and most of the products are sold for clearance.

As it can be seen from the picture above, Oroton sells most of their products on sale or promotion for the factory outlets. These specific outlets target consumers who are looking for premium products that are sold at a very low price point, one that they would not find otherwise on retail stores. Albeit, the products being sold might be an old model or clearance products.

10.0. Describe how your product or service varies its price depending on the distribution channel used? In terms of price difference between Oroton online shopping and in-store shopping, there are no significant difference between the price, however their online shopping offers more discounted price for their products, as some stores may not have the discounted product as a result of out of stock in the store, while via online shopping the product can be purchased as the product purchases via online shopping will be delivered via the shop that has the product, wherever the stores are located. Furthermore, the only significant difference of online shopping and in-store shopping of Oroton is that their online shopping has an outlet range product (Oroton, 2019), Outlet as we know offers mostly discounted products. However, having an outlet range product for a high-end product is considered

uncommon, as it could downgrade customers view towards a product, it would make customer think the brand is lower quality than what the brand trying to perceive.

11.0. Conclusion and Recommendations Conclusion Oroton is an Australian luxury labeled brand that is struggling to position itself as a luxury brand due to different consumer perceptions of the shop, as consumers perceive Oroton as a semiluxury brand and therefore Oroton’s pricing also reflect what the consumers perceive. Furthermore, there are a high number of competitors in the luxury goods market, and Oroton has failed to differentiate from these competitors, as Oroton lacks elements that could differentiate themselves from other brands. Oroton is still struggling to appeal to the target market, and is therefore trying to be versatile by offering different distribution channels and price discrimination, such as different prices when shopping online, retail stores and factory outlets. Pricing of the products are also being set at a semi-luxury price to appeal to Millennials.

11.1. Pricing for market penetration The principle of pricing market penetration ai...