final lululemon project

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Lululemon Athletica, Inc. Database Marketing Strategy

Lululemon Athletica Inc.

Database Marketing Strategy

By

Mufaddal Zaveri

Yuvraj Lal

Sedef Akinci

Huzefa Chiniwala

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Situation Analysis

Company History:

After 20 years of doing business in the surf, skate and snowboard business,

the founder chip Wilson took the first commercial yoga class offered in

Vancouver. After doing the yoga he realized that yoga is an ideology whose

time had come. So chip then started a design studio that became a yoga

studio at night to pay the rental expenses. The success of clothing depended

on the feedback from yoga instructors who were asked to wear the products.

The Lululemon name was chosen by surveying from a hundred people, 20

brands and 20 logos. Lululemons first store opened in the beach of

Vancouver called Kitsilano in November 2000. The prime motive of the store

was to be like a community hub where people could talk about and share

regarding physical aspects of living from yoga, diet cycling etc. But

unfortunately for this concept, the store became very busy and it was

difficult to educate the customers as well as sell products. So the focus of

training solely to educate the Lululemon staff and train the eople so well that

they could have a positive influence on their families, educator and staff.

(Lululemon Athletica: Company History)

Products:

Lululemon’s product line includes jackets, hoodies, pants, and shorts for both

men

and women as well as bras, underwear, and tank tops for women. The stores

signature products are its pants that are offered in both regular and tall

lengths . The majority of Lululemon garments are pre-shunk to ensure a

quality first time fit. Lululemons pants are often lauded that appeals to

female fashionistas, soccer moms, professionals and the men that gifts

them. Lululemon basically makes products for women that practice yoga.

The products are designed to offer performance, fit and comfort

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incorporating style. Lululemon prides itself of using cutting edge, quality

fabrics to their customers. Lululemon co-ordinates with the world’s best

fabric suppliers to develop trade make fabrics like the “All moisture wicking”

that pulls away moisture from the fabric and spreads it evenly through the

fabric to dry quickly. They also have the low impact fabrics that are made

from natural fibers. The outwear fabrics are designed to protect against wind

and rain. Other innovative features on the products are flat seems, tear out

tables and thumbholes for credit cards, audio players and heart rate

monitors. The company recently expanded their product range to appeal to

the men and youth segment. lululemon also sells fitness-related accessories

including bags, socks, underwear, yoga mats, instructional yoga DVDs, and

water bottles.

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Mission and Vision:

On Lululemon Athletica's website there is no traditional mission statement,

and it is clear that that they are more focused on their vision and goals.

Every employee is encouraged to set a personal goal and vision for

themselves regarding how to build a healthy life. Their Vision and goal

setting program is based on 6 main concepts:

1. Possibility

2. Vision.

3. Balance.

4. Audacity.

5. Format

6. Integrity.

(The six core concepts of vision and goals).

Current target market:

The company makes clothing for both sexes, 70% of the product is catered

to women. The typical lululemon customer is catered to women. The typical

Lululemon customer is female, age 25-35, educated professional, relatively

high disposable income because their products aren’t cheap, people who are

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active socially and physically conscious and open to the spiritual aspect of

living lives.

Historical Marketing Communication Strategy

Building a brand is the most essential component of marketing strategy.

Lululemon Athletica understands this by taking the brand beyond a good

logo and advertising.

The reason behind lululemon’s success is it found a savvy way to exploit

women’s deepest insecurities.It was the first brand that allowed women to

wear workout clothes without feeling embarrassed.Unlike competitors which

relies on celebrity endorsements, worth millions of dollars Lululemon relies

on unpaid “ambassadors” — Instructors at local gyms wear the apparel and

during free classes held at Lululemon stores.

The ambassadors provide valuable feedback to Lululemon on latest fashion

trends. They receive up to $1000 worth free merchandise for modeling the

Lululemon apparel and gain clients for regular classes after store sessions.

These promotional efforts are accelerate by little print advertising in running

and yoga magazines.

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As Lululemon grows so does its social media presence.The brand’s main

Facebook page has over 800,000 followers, including pages dedicated for the

individual stores.

Lulu is actively involved in social media sites like Tumblr, Pinterest

Foursquare, Instagram, and was the first brand on Zite (a customizable

magazine on the iPad/iPhone). The viral video “Shit Yogis Say” was created

by Lululemon.In the famous ad there is a lady that talks about how yoga is

good for her how good she feels after doing yoga. They basically make the

ad in such a way that it is funny and humorous and talks about the benefits

of doing yoga. Lululemon markets hyper-locally by tapping into the interests

of its individual communities and building events around them.Local

marketing is done by building events around individual communities by

tapping into their interest. The strategy of Lulu is to get involved even before

a new store opening in a community.Lulu’s loyal following is not only

devoted to its merchandise they also support its lifestyle.

They encourage leadership by displaying mantras on its bags, websites and

walls.(such as “dance, sing, floss and travel”)The employees do not just set

work goals but also life goals which encourages them to work and live better.

It is a brand that is directly understands the women. (Business in

Vancouver).

Market Analysis:

Business Overview:

Lululemon sells mens and womens clothing for yoga, dance, exercise and

other sports, catering to high-income, trendy active adults willing to pay high

prices. Lululemon apparel is sold in the company's own-branded stores (both

Lululemon and two special OQOQO stores that focus on organic apparel) as

well as in high-end lifestyle centers and yoga studios.

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On June 27, 2011 LULU said it expects to reach $1 billion in sales for the

fiscal year 2012. The company reported store productivity is up to nearly

$2004 per square foot, confidently shaking off concerns of encroaching

competition of high-end lines from large competitors such as Nike (NKE) and

Adidas AG

Segment Analysis:

Corporate owned stores (89.3% of net revenue): The Company has

103 corporate-owned stores in Canada and the US. The company plans to

increase North American net revenue by opening additional corporate-

owned stores.

Franchises (4.6% of net revenue[): As Lululemon was emerging into

the clothing industry, it entered into franchise agreements to more

quickly expand its brand name and increase net revenue. In exchange for

the use of Lululemon's brand name and right to operate stores in certain

regions, franchises pay the company a one-time franchise fee and

ongoing royalties based on their gross revenue. [ According to Lululemon's

SEC filings, opening new franchise stores is "not a significant part of our

near-term growth strategy." The company has franchise stores in North

America and Australia.

Other (6.1% of net revenue): Other net revenue includes wholesale

sales, telephone sales, and sales through a limited number of company-

owned showrooms. Wholesale customers include premium yoga studios,

health clubs, and fitness centers.

Retail Strategy:

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Lululemon apparel is sold in the company's own-branded stores (both

Lululemon and two special OQOQO stores that focus on organic apparel)

as well as in high-end lifestyle centers and yoga studios.

Most of Lululemon's stores are located in urban shopping districts, malls

and lifestyle centers, and they cater to high-income, trendy active adults

willing to pay high prices for Lululemon's apparel. LULU's growth has been

dependent on store expansion. The company also has one of the highest

sales per square foot figures in retail , averaging $1,700 of sales per

square foot in its corporate-owned stores (compared to $489 at

Abercombie and Fitch and $398 at GAP).

Lululemon is unique in that it does not rely on television or print

advertising to promote its product, but rather relies on building strong

community relationships (e.g. building strong relationships with yoga

studios and gyms in the communities in which it operates).

Competitive Advantage

High-end retailers such as Lululemon appeal to customers in the upper-

income bracket whose absolute spending power is less affected

by macroeconomic downturns. Lululemon's high prices, around $50-60 for

a t-shirt, cater to the upper-class consumer willing to pay premium prices

for workout gear. While the wallets of the lower- and middle-classes are

pinched during economic downturns, Lululemon's core customers

typically have wealth that allows them to continue purchasing trendy and

pricey exercise apparel despite downward trends in the economy.

combination of small stores and high prices help to create large profit

margins for Lululemon by increasing the difference between the

company's operating costs (store operating expenses are lower for

smaller stores: rent, utilities, number of employees needed to cover the

selling floor, etc.) and overall revenue. The average Lululemon corporate-

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owned store size is only 2,900 square feet, compared to average store

sizes of 7,089 square feet and 12,504 square feet at Abercombie and

Fitch and GAP, respectively. With a significantly smaller store and its high

priced items (over $60 for t-shirts), Lululemon is able to achieve sales per

square foot of $1,700 in its corporate-owned stores, over three times as

much as sales per square foot at Abercombie and Fitch ($489) and GAP

($398). All of this translates into lower costs and higher revenue for

Lululemon.

Competition:

Lululemon is one of the only major retail chains and clothing manufacturers

dedicated to yoga and fitness apparel, giving it a powerful position as a niche

player in the apparel retail market. It's primary competitors are small

businesses that operate individual yoga-wear shops and retail shops located

in gyms and fitness centers, as well as sporting goods retailers such as Dick's

Sporting Goods (DKS) which sell fitness apparel. It is nearly impossible to

compare Lululemon to these competitors as the smaller stores are too small

and sporting goods giants like Dick's Sporting Goods (DKS) derive most of

their business from product categories, such as sporting equipment and

footwear that Lululemon does not carry. However, Lululemon's advantage

over these smaller operations is the popularity of the Lululemon brand

among yoga-enthusiasts that has risen with the company's tremendous

growth over the past five years.

On a larger scale, Lululemon competes with sports industry

giants Nike and adidas which produce athletic apparel and accessories. Each

of these companies is incredibly larger than Lululemon in terms of sales and

channel presence as they have their own stores in addition to being carried

in a multitude of online and brick-and-mortar stores. Sports apparel and

footwear manufacturer Under Armour is also a competitor of Lululemon as

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the company produces high-tech apparel for exercise and athletics. Under

Armour (UA) is closer in size to Lululemon, although Under Armour targets

young team sport athletes while Lululemon focuses on customers involved in

yoga, running and other individual

exercises.However, Nike, adidas and Under Armour all have significant

footwear operations, which is not part of Lululemon's business. (See appendix)

New Product Initiatives:

In September 2009, Lululemon launched a spinoff brand, ivivva athletica –

dance inspired clothing for active girls, ages 6-12 . We believe the launch of

a separate brand was a good business decision rather than making ivivva a

brand extension. Furthermore, it positions Lululemon as an aspiration brand

when girl customers grow out of ivivva.

LULULEMONS SHARE FALLS BY 5%:

The stock market darling Lululemon saw its share fall down by 5.2% on

Friday afternoon. Lululemon has been the favourite of the retailers but the

company warned the investors last month that the company sales are going

to be low in the high single digits from the 4th quarter of 2012. Lululemon

have to increase their discounting both in stores and online as a shift in

strategy. The company began an initiative in 2011 to increase inventory to

meet the growing demnds of people for yoga equipments.They have been

working on their pricing and other strategies as well to increase their market

share. It has been a challenge for lululemon to reach a fine balance between

hving too much inventory and have less of it. (Lululemon’s share falls by

5%).

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SWOT ANALYSIS

Strengths

High Quality Products

Innovative features and style

Vertical retail strategy: Produce everything and sell it in own store.

Premium store locations.

Community centered marketing approach-building brand awareness, relationships and philantrophic activities.

Weakness

Weak brand recognition in the U.S-may not be in the consumers consideration set.

Slow growth strategy due to lack of mass marketing.

Decentralization marketing-each store has control over own message.

Few retail outlets-may not be able to reach all customers especially males.

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OPPURTUNITIES

International expansion

E-commerce development.

New market segment- man and youth.

Growth in U.S market

Build U.S brand recognition

THREATS

Economic conditions may decrease consumer spending.

Lack of consumer knowledge.

Fluctuations in stock market might affect the image of the company

Target MarketPrimarily Lululemon's target market has been active young thinking women

woman who are well educated appearance conscious give physical well

being priority and also love yoga. These women are generally aged around

20-45 and are part of upper middle class families. Lululemon practice a

Niche Marketing strategy going after a very narrow and well defined target

segment in which they have had great success. More than 85% of

Lululemon's sales are from this target market and they will always remain

the primary target market for Lululemon. Our marketing strategy is going to

target males, Lululemon already has a male clothing line and has been trying

to get the male-workout market share for a while now. Males usually don't

prefer shopping at Lululemon due to their over positioned status of being a

female clothing line. Our Marketing strategy will try to acquire males who

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have similar attributes to Lululemon's female target market that is educated

young thinking men aged 20-45 who are appearance conscious are

physically fit and active.

OBJECTIVES:

The marketing campaign that we will launch will be called 'Manhunt'. The

primary objective of our program is to increase the number of male

customers of Lululemon through the existing customers that Lululemon

already has. This will be achieved through a combination of referral

Acquire new male customers through referrals.

Increase spending of existing customers through the loyalty program.

Increase retention through both loyalty and referral programs(referred

customers tend to be more loyal).

Increase referred customers by giving incentives to both referred and

referring customers.

Increase sales and attract male customers to Lululemon.

Acquire information about the referring and the referred customer and

thus know their descriptive profile (geography, demographics and

income), behavioral (product interaction, shopping habits).

STRATEGIES:

The overall strategy is to have a referral and loyalty program to

acquire new male customers and retain current customers through

loyalty program.

The marketing and communication program will be word-of-mouth, in

store advertising and post on websites and social media pages

(facebook, youtube, twitter, instagram) as always because Lululemon

does not practice mass marketing. It will focus on building awareness

among males through underground marketing and guerrilla marketing.

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The program will be a combination of a loyalty and referral program

where existing customers will refer new male customers which will

qualify both of them for a one time discount and automatically add

them to the loyalty program as well.

The benefits of the program to the customer is that after registering for

the program by referring a male friend, they will both be eligible for a

one time discount on their next purchase at Lululemon. They also

qualify for the loyalty program where they earn credit points for every

purchase they make.

It is easy for the customer to accept the offer since they derive

benefits from the program immediately and in the long term. The

program is very straight forward as the customer only has to provide

information to get the unique loyalty Card which they can use to

redeem collect points after every purchase.

With this program the information to be managed will increased and a

proper system will be required to handle it and staff will have to be

trained to use it.

TACTICS:

Our tactics used to implement our strategy are as follows:-

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The program will be marketed in stores, websites and social media

(facebook, twitter, youtube) and information about the new program

will be given by our staff to the customers during the purchase.

To be eligible for the program the customer has to register with a male

friend of theirs where both have to fill out a form giving basic personal

information

Each customer will be assigned a card with a UNIQUE I.D that will

identify the customer and record all future transactions with

Lululemon.

After registering the customer will be entitled to a a one time 10%

discount on their next purchase. Following that they will earn 10 credit

points for every $100 they spend. On earning 100 credit points they

can redeem these points for a $100 gift card to buy any product at

Lululemon.

Customers can terminate their cards at any time they want by calling a

number given on their card. This number can also be used for enquiries

such as number of points they have earned or offers given by

Lululemon on their products.

All the information provided by the customers will be in compliance

with privacy laws and ethical business practices.

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DATABASE REQUIREMENTS:

The database will require the customer to give basic information of

themselves. An example of the form and its content is given below:

NAMEMUFADDAL ZAVERI

DATE OF BIRTH 24th NOVEMBER 1990GENDER MALEADDRESS 85,Thorncliffe Park DriveCity TorontoPROVICE OntarioPostal Code M4H 1L6TELEPHONE (647)-773-4783EMAIL ADDRESS

[email protected]

SIGNATURE

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LTV Estimates

Lululemon Referral LTV Year 1 Year 2 Year 3

Customer 2,000,000 2,000,000 1,900,000

Spending Rate $500 $550 $600

Retention rate 0 90% 90%

Retained Customers 0 1,800,000 1,710,000

Referral Rate 0 5% 8%

Referred Customers 0 100,000 152,000

Total customers 2,000,000 1,900,000 1,862,000

Total Revenue $1,000,000,000 $1,045,000,000 $1,117,200,000

Variable cost % 43% 49% 45%

Variable cost $430,000,000 $512,050,000 $502,740,000

Program Cost(50$) 0 5,000,000 7,600,000

Fixed Cost $130,000,000 $130,000,000 $130,000,000

Total Cost $560,000,000 $647,050,000 $640,340,000

gross Profit $440,000,000 $397,950,000 $476,860,000

Discount rate 1 1.16 1.35

NPV $440,000,000.00 $343,060,344.83 $353,229,629.63

Cumulative NPV $440,000,000.00 $783,060,344.83 $1,136,289,974.46

LTV $220 $391.53 $568.14

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MEASUREMENT TESTING AND EVALUATION:

We can measure the success loyalty program by having a count of the

number of forms filled up and the loyalty cards given to the customers. It will

also give us a count of the new male customers that have purchased from

Lululemon.

We can measure the increase in life time value from the previous years with

respect to the new LTV which is due to the referral program.

CAPITAL REQUIREMENTS:

Cost of making loyalty cards and forms

$500000

Cost of training staff-

$500000

Cost of in house advertising and website updates

$500000

Social Media advertising

$50000

Database and CRM software

$1000000

Total Cost

$2550000

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Appendix-A Lululemon Manifesto

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Appendix-B Lululemon’s Quality Stand

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Appendix-C Lululemons Competitors

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Appendix-D Base LTV for estimation:

Lululemon LTV Year 1 Year 2 Year 3

Customers $ 2,000,000.00 $ 1,800,000.00 $ 1,600,000.00

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Retention Rate 90% 90%

Spending Rate $ 500.00 $ 550.00 $ 600.00

Total Revenue $ 1,000,000,000.00 $ 990,000,000.00 $ 960,000,000.00

Variable Cost % 43% 49% 45%

Variable cost $ $ 430,000,000.00 $ 485,100,000.00 $ 432,000,000.00

Fixed Cost $ 130,000,000.00 $ 130,000,000.00 $ 130,000,000.00

Total Cost $ 560,000,000.00 $ 615,100,000.00 $ 562,000,000.00

Gross Profit $ 440,000,000.00 $ 374,900,000.00 $ 398,000,000.00

Discount Rate 1.00 1.16 1.35

Net Present Value Profit $ 440,000,000.00 $ 323,189,655.17 $ 294,814,814.81

Cumulative NPV Profit $ 440,000,000.00 $ 763,189,655.17 $ 1,058,004,469.99

Lifetime Value $ 220.00 $ 381.59 $ 529.00

Bibliography:

Works Cited:

“Company History” : http://www.lululemon.com/about/history?mnid=ftr;company_history “Current target market” : http://www.charleson.ca/pdfs/05_brand_Lululemon.pdf “Mission and Vision” : http://www.lululemon.com/education/sixcoreconcepts.

“Company sales falls by 5%” :Freeman, Sunny. "Lululemon Shares Fall by Five Per Cent."

Telegraph-JournalJan 05 2013. ProQuest. Web. 12 Apr. 2013 .

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http://www.lululemon.com/education/sixcoreconcepts

http://www.lululemon.com/about/history?mnid=ftr;company_history

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“MarketAnalysis”http://www.wikinvest.com/stock/Lululemon_(LULU)/

Data/Key_Metrics

"Lululemon’s Marketing Strategy | Grewal Levy Marketing News." Grewal Levy Marketing News. N.p., n.d. Web. 12 Apr. 2013. <http://grewallevymarketing.com/2010/09/13/lululemon%E2%80%99s-marketing-strategy/>.

http://www.charleson.ca/pdfs/05_brand_Lululemon.pdf

"Brands of the Year: Lululemon takes local to the next level » strategy." strategy. N.p., n.d. Web. 12 Apr. 2013. <http://strategyonline.ca/2012/09/28/brands-of-the-year-lululemon-takes-local-to-the-next-level/>.

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http://www.charleson.ca/pdfs/05_brand_Lululemon.pdf