De La Salle UniversityRamon V. Del Rosario College of BusinessManagement and Organization Department

THE NORTH FACECASE ANALYSIS

Submittedin Partial Fulfilment of the Requirements in

MKT535M Marketing Management

To:Ms. Regina Dy

By:Lim, Rapunzel Grace T.

7 April 2015

FACTSThe North Face (TNF), is the world’s premier supplier of authentic, innovative and technically ad-

vanced outdoor apparel, equipment and footwear. Its products are specially made and targeted for

mountaineering, backpacking, skiing retailers, sporting and outdoor goods retailers. It has attained

the reputation of being a high performance, quality, outdoor brand. TNF is a subsidiary of the Van-

ity Fair (VF) Corporation, was founded in 1966. Its first retail store was established in 1968 at San

Leandro, California, USA.

Company Background

VF Corporation is a global apparel and footwear company founded in 1899 at Greensboro, North

Carolina. At present, VF Corporation is a $12 billion apparel and footwear powerhouse, as well as,

a global leader in the said industry. It has a wide range and an international portfolio of brands and

products. Its diversified business model is classified into five product categories: Outdoor and Ac-

tion Sports, Jeanswear, Sportswear, Contemporary Brands and Imagewear.

Outdoor and Action Sports category comprises of Eastpal, JanSport, Kipling Europe, Napapijri,

The North Face, Reef, Vans, Eagle Creek, SmartWool, Timberland, Lucy. The Jeanswear cate-

gory includes famous brands such as Wrangler, Lee Jeans, Rustlers, 7 For All Mankind, 20X, Chic

and Rock Republic. Sportswear section consist of Nautica and Kipling U.S. While 7 for All

Mankind, Ella Ross and Splendid are classified under Contemporary Brands. Lastly, Imagewear

consists of the following: Red Kap, The Force, Bulwark Protective Apparel, Chef Designs and Ma-

jestic Athletic.

In 1966, outdoor sports and gear industry was still in its fancy in the US Alpinists were forced to

buy military packs, tents and apparel in Army supply stores. Backpacking was a foreign concept at

that time. When Doug Tompkins, a passionate skier, and his wife Susie opened a ski and camping

gear storefront at San Francisco North Beach.

In 1968, TNF begins manufacturing. Kenneth “Hap” Klopp acquired The North Face and shifted its

focus from retailing a variety of products to designing and manufacturing outdoor gears under The

North Face brand. The first production facility was squeezed into the back of The North Face store

in Berkeley. Hap also hired his friend from Standford Business school to run the factory and launch

a wholesale business. Thereafter, several outdoor products are developed and clicked on the mar-

ket.

The North Face, as an outdoor and action sports brand, aims to continually inspire outdoor enthu-

siasts to get outside and explore more with its position “Never Stop Exploring”. The company also

aims to provide both professional and amateur athletes and enthusiasts high quality, technical and

in-style apparel, footwear and outdoor gears. TNF filed for bankruptcy in the late 90s. But in the

last quarter of 2010, TNF’s profits rose by 20% as driven by its sales in the Asian markets.

The North Face in the Philippines

The North Face Philippines is under the Primer Group of Companies. The Primer Group is founded

in 1985. Akin to VF Corporation, Primer Group is engaged in the retail and distribution of premium

consumer brands in outdoor, travel, footwear, fashion, wellness and urban lifestyle. The company

has a diverse portfolio of products and services. Under the Outdoor Category of its brand portfolio

is The North Face.

At present, The North Face is among the most well-known brands of outdoor apparel and gears in

the Philippines. Although it has a variety of products, TNF backpacks are among the sought after

backpacks to both expert and amateur mountaineers, hikers, backpackers and even just for light

travel or school. Its backpack products are divided into two: daypacks and the technical packs. The

latter cater mostly for the heavy-users, professional and athletes.

STATEMENT OF THE PROBLEMWhat should The North Face do in order to address the threat of substitute products such as

Deuter, Columbia, Patagonia and Brown Trekker?

OBJECTIVES• To offer more affordable backpacks

• To develop quality products at the least possible cost

• To compete with other brands such as Columbia, Deuter, Brown Trekker in terms of price

• To address the lack of consumer knowledge on quality and technological innovation

AREAS OF CONSIDERATION/ASSUMPTIONSTNF’s brand image and name recall. When canvassing for a backpack to be used mostly for

travel or mountaineering, TNF is often the first brand the pop into one’s mind. Several outdoor en-

thusiasts and bloggers also recommend buying TNF backpacks for amateur travellers because it is

lightweight, high-quality and durable. Research and interview revealed that when Filipinos are

asked about The North Face, some associate it with “sports”, “for climbing a mountain”, “backpack-

ing”, “the only brand I’m familiar with that sells hiking backpacks”, “travel”, “bags”.

TNF as the status symbol. Research and interview also showed that TNF is a status symbol in

the Philippines. To some people TNF’s quality and user compatibility only comes in second to its

brand name.

TNF is coined as overpriced. There a quite a few mountaineering experts who shared that TNF

is overrated. Although they agree that the quality is indeed impressive, they think that it is unneces-

sary to spend a huge amount of cash when there are other options. While some think that TNF

backpacks are great investment, others prefer buying two backpacks with only one TNF backpack

price.

Cheaper alternatives and substitutes. When an amateur looks for an outdoor gear or back-

pack, there are also some who suggests TNF as the best investment. However there are a few

who suggests that when such backpack will not be used often, other brands such as Columbia,

Deuter or even local brand, Brown Trekker, are more affordable alternatives. Some people were

asked of what they think when they hear the word The North Face, they replied with “too expen-

sive”, “there are cheaper backpacks”, “look for a fake TNF bag instead”.

SEGMENTATION, TARGETING AND POSITIONING

Market Segmentation

It is important for a company to initially segment its market before identifying its target consumer

market. Market segmentation is the process of dividing the market into several groups based on factors such as demographic, geographic, psychographic and behavioural factors.1 Segmentation will allow TNF to have a better understanding of its market and to be able to serve this market effectively. This paper concludes that TNF market seg-ments are demographic, psychographic and behavioural.

Demographic segmentation divides the consumers into several factors such as age, gender, family size, income, occupation, religion, social class, nationality, race and more. One reason demographic variables are so popular with marketers is that they’re often associated with consumer needs and wants.2 This market segment is broad that it became easy to measure and it covers almost all types of consumers.

TNF targets the upperclass consumer market. TNF equipment and technical backpacks do not cost less than P3,000. Thus, the company’s demographic segment comprises of social classes A and B. Moreover, the common demographic of TNF are often young 1 Larse, N. (2010). Market Segment: A framework for determining the right target consumers. BA-thesis. Aarhus School of Business. University in Aarhus, Denmark.2 Kotler, P. & Keller, K.L. (2012). Marketing Management. New Jersey: Prentice Hall.

men and women. Most of them are sports and outdoor enthusiasts, may they profes-sionals or amateurs.

The second one is the psychographic segmentation wherein the buyers are divided into groups based on psychological/personality traits, lifestyle or values. TNF caters mostly to consumers who incorporate or try to incorporate exercise and outdoor activi-ties into their daily lives, unlike most people who live a sedentary lifestyle. The com-mon personalities of TNF’s target consumers are outdoor and fun-loving people, active, adventurous and high in energy. Athletes are also target consumers.

Market Targeting

The company’s target market are adventurous, outdoor-loving, active individuals. These individuals

take exercise, travel and exploration seriously that they are willing to invest in gears which are

durable and of high quality to fit their lifestyle.

This paper concludes that TNF applies a combination of mass marketing and niche marketing.

Mass marketing, also called undifferentiated marketing, allows the product to be sold to the broadest number of buyers via mass distribution. This type of marketing creates a large market at a low cost. While, niche marketing creates a product which target a specific market need. TNF has a wide range of distri-bution channels. Its retail outlets are very much accessible nationwide as TNF products are present at every mall.

On the other hand, TNF products are specially made for mountaineering, backpacking, ski-

ing, sporting and outdoor goods. TNF is often popular amongst those who love to travel and ex-

plore. However, there are also a number of people who are not familiar with the TNF brand be-

cause outdoor activities do interest them. Rather, they heard of the brand but didn’t know the pur-

pose and technological innovations that the brand has to offer. Nonetheless, the company’s goal is

to encourage people to explore and go outdoors.

Market Positioning

In 1997, TNF adopted the tag line “Never Stop Exploring”. The company reinforced the spirit of adventure that would continue to guide The North Face. The “Athlete Tested”

tag line also emerged in the same year. TNF adopts an intensive research and devel-opment to specifically cater to the needs and wants of its target consumers.

Its research and development team send out equipment and outwear prototypes for athletes to try in rigorous and real-time field-testing. The company encourages an ac-

tive lifestyle to everyone. TNF makes adventure and travel more desirable with its mantra “Get Connected. Get Involved. Get Outdoors”.

Marketing Mix

Product

TNF has a wide range of sports and outdoor apparel and equipment which caters to both men and women. Its products ranges from T-shirts, jackets, pants and shoes to equipments such as backpacks, tents and the like.

This paper however focuses on TNF backpacks. Perusing through blogs and conducting interviews, it appears that a TNF backpack is one of the most sought after products of the said company. It appears that TNF doesn’t only offer a backpack but one with fea-tures fit for the needs of a consumer. There hiking backpacks can go as light as 0.9 ki-los or have a a maximum capacity as spacious as 66 liters.

TNF continuously develops innovative and proprietary fabrics for both their apparels and equipments. TNF wants to ensure that its products are comfortable durable and outperforming longer in a variety of weather conditions. It continuously experiment with fabrics to produce a lightweight and durable products fit for general outdoor ac-tivities and even for day-to-day use.

Price

TNF backpacks are notorious for being too expensive. Most of its backpacks can go as low as P3,000 and as high as P12,000 plus.

Place

TNF is the leading technical backpack brand in the Philippine market. Its products are available at variety of malls in Metro Manila and provinces nationwide. The Primer Group Philippines posted in its website the different store branches locations of The North Face brand. These are the following:

PHILIPPINES: NCR

THE NORTH FACE - SHANGRI-LA PLAZA MALLTHE NORTH FACE - SM MALL OF ASIATHE NORTH FACE - GLORIETTA 4THE NORTH FACE - SM MEGAMALLTHE NORTH FACE - SM NORTH EDSA ANNEXTHE NORTH FACE - ALABANG TOWN CENTERTHE NORTH FACE - SM AURATHE NORTH FACE - SUBIC HARBOR POINT

PHILIPPINES: PROVINCIAL

THE NORTH FACE - SM ILOILOTHE NORTH FACE - SM CEBUTHE NORTH FACE - SM CAGAYAN DE OROTHE NORTH FACE - SM DAVAO

Promotion

TNF is very much active on its campaign to get involved outdoors. TNF Philippines is

well-known for its yearly Break All Boundaries Trail Running Challenge. It also hosts several events such as the Great Camp Out, Seven Summits Pilipinas (Conquer Your Seven Summits), Davao Wall Climbing Competition and the like.

With social media, TNF brand is covered under the Primer Group of Companies web-site. TNF also has its very own Facebook page The North Face PH. The North Face Philippines (Fan Page) was also created but Filipino outdoor enthusiasts. Although TNF Philippines is not big on social media such as getting involved in other sites such as

Twitter or Instagram, it already attained a brand recall because of the activities the brand is involved in.

THEORETICAL FRAMEWORKSDespite its strong reputation and brand recall, it cannot be disregarded that there are many players

in the backpack industry. It is necessary to understand and study the factors influencing a business

operation. This paper will apply Porter’s Five Forces Model of Competition focus on Substitutes in

relation to Nagle and Holden Perceived Substitutes Effect.

Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a

marker or market segment. The company has to consider the industry competitors, new entrants,

substitutes, buyers and

suppliers.

Figure 1: The North Face Philippines Porter’s Five

Forces Appli- cation

Threat of New Entrants

The increasing number of new startup competitors is the biggest threat faced by established small

and medium businesses.3 New players industry becomes a threat to existing competitors because

3 Torrance, J. (2014). Growing number of startup competitors is biggest threat to businesses. Real Business. Retrieved from: http://realbusiness.co.uk/article/27360-growing-number-of-startup-competitors-is-biggest-threat-to-businesses.

of the possibility that they can decrease the market share of the existing players. When the entry

barriers are low in a profitable industry, it will be easier for new players to enter the market. Pur-

suant to Euromonitor, the bag and luggage industry is the Philippines in the past years. Fortu-

nately, there are high entry barriers to outdoor bags industry because it is a niche market.

Threat of Substitute Products

Consumers are price sensitive. They can shift to variety of alternatives which can provide them

with the same quality product at a lower price. This paper seeks to relate this specific sub-section

of Porter’s Model to Nagle and Holden’s Perceived Substitutes Effect.

Figure 2: Nagle and Holden Perceived Substitutes Effect Application

According to Nagle and Holden, Buyers are more price sensitive the higher the prod-uct’s price relative to the prices of the buyers’ perceived substitutes. The said authors emphasized that perception varies among consumers and purchase situations.4 Thus, the threat to TNF is the consumer notion that they can get the same backpack quality at an affordable price with other brands.

Threat of Bargaining Power of Customers

In relation to what was discussed earlier, consumers are price sensitive. They can shift from one

product to another at their liking and most companies will try to keep up with their preferences. For-

tunately for TNF, the company doesn’t have to adjust to consumer bargaining power in relation to

4 Hinterhuber, A. (2003). Towards value-based pricing—An integrative framework for decision-making. In-dustrial Marketing Management Science Direct. Retrived from: http://www.quartetfest.ca/documents/12170/13.__Hinterhuber___Towards_value-based_pricing.pdf

its quality. People go to TNF because of its brand name and the high performance product that it

has to offer.

Threat of Suppliers ’ Bargaining Power

TNF’s raw materials are imported since it is a large US company with different manufacturing

plants worldwide. Suppliers are the sources of raw materials, machinery, services. Without the

suppliers, a company will be forced to manufacture its own raw materials which will require extra

time and expenses. TNF doesn’t have to worry because it is, as reiterated, a successful company

with a number of plants. Thus, it has control of its raw materials. It also develops its own fabrics

where its research and development team come up with durable and high performing fabrics for its

apparel and equipment backpacks.

Industry Rivals

Competition will eventually lead to price wars, advertising competitions, introduction of new prod-

ucts. There are only a few well-known outdoor, hiking and mountaineering backpack brands in the

country such as Deuter, Columbia, Patagonia and even the local brand, Brown Trekker. In the

Philippine market, research and interview showed that the TNF has the strongest brand recall and

the largest brand. In relation to what was mentioned above, these industry rivals become a threat

only when they are considered as substitutes from the TNF products.

SWOT ANALYSIS

HELPFUL HARMFUL

INTERNAL

STRENGTHS·       Strong brand reputation·       Technological innovations. TNF

has a strong Research, Design and Development Team

·       Provides environment friendly, quality and durable products

·      TNF is big on marketing and pro-motions through its organized outdoor activities.

WEAKNESSES·       Niche market. TNF focuses on sports

and outdoor apparel and gears.·       Too expensive

EXTERNAL

OPPORTUNITIES·       Euromonitor International pro-

vides that Philippine Bags and Luggage Industry grew in year 2014.

·      Same source states that travel and tourism industry is profitable as well.

THREATS·      Counterfeiting products is ram-

pant in the Philippines and in Asia

·       Growing interest of consumers in outdoor activities such as hik-ing and backpacking.

ALTERNATIVE COURSES OF ACTIONACA 1: Keep the current market (Class A and B) but introduce and launch a more affordable prod -

uct line.

This option will allow TNF PH to keep its existing market since it is already successful on its

own. Customers have a reference price when there are many substitutes, as long as the offering it is within that range and acceptable. Marketing can influence which products consumers will compare yours with.

Research showed that there is high threat of substitute to TNF products because of its immense

cost. As mentioned, TNF are sometimes coined as overpriced and some people suggest that

one can get the same quality at a lower price with Deuter. Thus, this option will allow TNF to

cater to a wide range of consumers without sacrificing its quality.

Pros Cons

To be able to provide more affordable products with-out sacrificing its quality and existing market

Requires extensive research and time

ACA 2: Communicate effectively to the consumers the importance of technological innovations

and quality.

Perhaps the problem is with lack of consumer knowledge on the value of the product’s quality,

thus they are not willing to shell out huge amounts of cash. However, this option suggests advo-

cacy. It is important to communicate to its market both professionals and amateurs that “you get

what you pay for”. Through marketing and advertising, TNF can gradually emphasize that its

products are considered investments, and that durability and quality stomps price.

Pros Cons

Quick and easy solution. It can be done through marketing, advertising and constant communication with its consumer market

No assurance that such communication will be a success

ACA 3: Tap into the lower C and D consumer market.

This option requires a change in TNF’s entirety which is quite difficult since TNF PH is just a re-

tailer in the Asian market. Philippines is a developing country. The masses are greater in num-

ber than those in the Class A and B market. To delve into this market will expand TNF’s range

of consumers since its products will be more accessible to anyone and everyone. This however

will require TNF to look for more cheaper raw materials and no assurance that its goal and qual-

ity will be the same.

Pros Cons

TNF Ph will be able to cater to a wide range of con-sumers and it will be more accessible to anyone and everyone

The possibility of sacrificing its quality for its price. It might divert from its vision of providing for comfort,

quality and durability.

RECOMMENDATIONThis paper recommends to adopt ACA 1: Keep the current market but introduce a new and more

affordable product line. This way nothing has to be sacrificed. TNF doesn’t have to give up its origi-

nal concept and objective. It will just launch an affordable TNF product line within the range of

P800 to P2000.

ACTION PLAN

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Hinterhuber, A. (2003). Towards value-based pricing—An integrative framework for decision-mak-ing. Industrial Marketing Management Science Direct. Retrived from: http://www.quartetfest.ca/doc-uments/12170/13.__Hinterhuber___Towards_value-based_pricing.pdf

Kotler, P. & Keller, K.L. (2012). Marketing Management. New Jersey: Prentice Hall.

Larse, N. (2010). Market Segment: A framework for determining the right target consumers. BA-thesis. Aarhus School of Business. University in Aarhus, Denmark.

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Torrance, J. (2014). Growing number of startup competitors is biggest threat to businesses. Real Business. Retrieved from: http://realbusiness.co.uk/article/27360-growing-number-of-startup-com-petitors-is-biggest-threat-to-businesses.

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