Benetton

Marketing Strategies

Product Development and Promotion

Benetton had a unique product basket with brighter, fashionable yet casual clothes. The market was clustered on the basis age and products were retailed under different labels and product names. The company's product list consisted of more than 2000 different item-label combinations. The major product lines of Benetton were 012 Benetton, Jeans West, My Market, Sisley, Tomato and Mercerie

For each trade name, appropriate style of furniture and equipment, color of lighting, type of music, and appropriate sex, age and dress style for salespeople was carefully chosen. The outlets were equipped with open shelves to draw attention to the bright colors. Benetton relied on location and bright, inviting store appearance for its promotional effort.

The company's television spots emphasized the sport and youth image of the Benetton name. Magazine advertising was used for institutional campaigns. More than 2/3 rd of the total advertising budget was spent on magazine advertising. The company also invested in sports events and patronized Italian rugby and handball team and committed $2 million for F-1 racing.

On the whole, Benetton's advertising budget was twice that of its nearest competitor.

Pricing

Prices of the apparels of Benetton were lower as compared to those of its competitors offering clothes of same quality. The median retail price Benetton Garments was about $20. Therefore, price, quality, high fashion content and bright colors were at the core of company's retailing strategies.

Distribution

Benetton achieved retail distribution through verbal agreements with agents. These agents were assigned large territories to develop Benetton stores by establishing partnerships with small investors and store operators who had the Benetton mentality. Stores did not pay any royalty to Benetton but they were required to carry only Benetton merchandise, maintain minimum sales level and make payments according to the preset schedule. The merchandise was moved amongst shops as the sales pattern developed.

Great deal of attention was paid to store location, emphasizing areas of high traffic for young adults. The first store in a given market was sited in a high prestige location. Once this was settled, the company tried to blanket the area around it with shops offering Benetton's merchandise.

Benetton did not accept any merchandise return from the retailers or the agents. The merchandise at the end of the season was allowed to be sold at a lower price.

Logistic Strategy

Stores carrying Benetton products had limited storage space for back Ð'-up stocks. Therefore, shipments had to be carefully planned and executed so that the merchandise could be directly put on the store shelves.

Agents collected orders from individual stores and relayed them electronically to Villorba, where directions were given for orders to be manufactured. It generally took less than 5 weeks to service a typical replenishment order.

The merchandise sent was premarked in the currency of the country of destination with tickets coded to be processed electronically at the time of sale. Further improvements in the form of a new information system and a new fully mechanized warehouse that would reduce transportation costs were being considered.

Manufacturing Strategies

The first step involved preparation of prototype and sample collection. This was generally done 4 times a year under Giuliana. After the finalization of the design, raw materials were procured and processed. Processing involved steps like softening of wool and spinning. The garments were manufactured by machines that produced parts of garments in their correct shapes. The next stage, assembly involved joining the basic parts of each garment, such as front, back and sleeves for sweaters. Finishing operations included making buttonholes, sewing buttons, ironing, labeling and final inspection prior to packaging for shipment.

To be responsive to customers' needs, product, Benetton had changed the sequence of manufacturing operations. Instead of dying yarn and then assembling garments, they began dying assembled garments. This is known as postponement strategy. It helped them become responsive to customers' color preferences as and when the product was introduced in the market. Also, as a result, inventory levels could be maintained at industry level despite the fact that the product line consisted of 500 different color and style combinations.

Benetton brought in innovative processes to meet its customer demands. In order to make the wool soft and pliable, they improved on a crude process picked up from Scotland. To avoid use of centrifugal that shrank the wet knitwear, it developed a process that placed the knitwear in a bag on a stick and rotated it vertically in the air.

Financial Strategies

In 1982, Benetton's sales stood at $311 million, three times the next competitor in Italy.

One of the most important financial strategy adopted by Benetton involved managing its cash flows. Payments to sub-contractors, a major cash outflow, were made 70 days after the end of the month in which production occurred. Collections from retailers were based on a season beginning date, with 1/3rd payment due 30, 60, 90 days after that date or date of actual receipt of merchandise. This minimized retailers' investment in inventory and also helped Benetton run its business with very little cash in hand.

Garments