HMV Analysis

HMV: a major company in the entertainment industry crisis
Lecturer: Shay Lynch Number of member 1 2 3 4 Student Names Marion LELANDAIS Marie LANDO Tatiana BLANC Agathe VIGNERAS Student Numbers 1626879 1626958 1626879 1626889 % of the total project 3% 2% 45% 50%
BA (Hons) in Marketing Jan. Dublin Business School
Table of Contents
Chapter 0 Challenge ............................................................................................................................. 6 Background consulting study .............................................................................................................. 6 HMV UKs Profile ................................................................................................................................. 6 Roland Berger & Partner UKs Profile .................................................................................................. 6 Process following................................................................................................................................. 6 Chapter 1 The entertainment environment ......................................................................................... 8 1. Financial Crisis ............................................................................................................................. 8 2. Entertainment Industry ............................................................................................................... 8 3. Downloading ............................................................................................................................... 8 4. Consumer Behaviour ................................................................................................................... 9 Chapter 2 HMVs Internal Audit ......................................................................................................... 10 1. Capabilities ................................................................................................................................ 10 2. Products, Distribution and Brand management ....................................................................... 10 3. Stakeholders .............................................................................................................................. 11 Chapter 3 Recommendations and Implementations ......................................................................... 13 1. To Develop a R&D program ....................................................................................................... 13 A need of R&D program is perceived ............................................................................................ 13 A need of finance to develop a R&D program .............................................................................. 13 2. To re-think the offer .................................................................................................................. 14 Need a reduction of prices ............................................................................................................ 14 Need to expand the service offer .................................................................................................. 14 Need a dematerialization of product: to foster online product rather than physical product on the decline ..................................................................................................................................... 14 Multichannel distributor confirmed .............................................................................................. 14 Conclusion ............................................................................................................................................. 16 References ............................................................................................................................................. 17 Appendix 1 PESTEL Analysis ............................................................................................................... 22 Political and Legal factors .................................................................................................................. 22 Economic and Environmental factors ............................................................................................... 22 Social-cultural factors ........................................................................................................................ 23 Technologic Factors ........................................................................................................................... 24 Appendix 2 Key Drivers in the entertainment industry ...................................................................... 26 Financial Crisis 2008 .......................................................................................................................... 26 Music Diversification ......................................................................................................................... 26 High technology and innovation ....................................................................................................... 26 Dematerialization of the entertainment industry ............................................................................. 26 Products are dematerialized ......................................................................................................... 26
Services around the entertainment are dematerialized. .............................................................. 26 Legal and illegal: piracy and free platform ........................................................................................ 26 Piracy ............................................................................................................................................. 26 Free Platform................................................................................................................................. 27 Appendix 3 Porters Five Forces ......................................................................................................... 28 Music: .................................................................................................................................................... 28 Competitive intensity: ....................................................................................................................... 28 Potential new entrants: ..................................................................................................................... 28 Bargaining power of suppliers........................................................................................................... 29 Bargaining power of buyers .............................................................................................................. 29 Threats of substitute products or services ........................................................................................ 29 Movie:.................................................................................................................................................... 29 Competitive intensity: ....................................................................................................................... 29 Potential new entrants: ..................................................................................................................... 29 Bargaining power of suppliers........................................................................................................... 29 Bargaining power of buyers .............................................................................................................. 29 Threats of substitute products or services ........................................................................................ 30 Video games .......................................................................................................................................... 30 Competitive intensity: ....................................................................................................................... 30 Potential new entrants: ..................................................................................................................... 30 Bargaining power of suppliers........................................................................................................... 30 Bargaining power of buyers .............................................................................................................. 30 Threats of substitute products or services ........................................................................................ 30 Appendix 4 Life Cycle Product Analysis .............................................................................................. 31 CD industry ........................................................................................................................................ 31 DVD industry ..................................................................................................................................... 31 Video Game Industry ......................................................................................................................... 31 Appendix 5 Strategic Groups .............................................................................................................. 32 Situation by SBU ................................................................................................................................ 32 Music ............................................................................................................................................. 32 Visual Industry ................................................................................................................................... 34 Games Industry ................................................................................................................................. 36 Appendix 6 Market Segmentation ..................................................................................................... 38 Appendix 7 - HMV UK & Irelands Value Network & drivers: CDs, DVDs, Games ................................. 41 Appendix 8 Value Chain of HMV UK ................................................................................................... 43 1. Infrastructure ............................................................................................................................ 43 General management (Hmvcarreers)................................................................................................ 43 Data network infrastructure ......................................................................................................... 43 Recent changes.............................................................................................................................. 44
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Human Resource Management................................................................................................. 44 Brand and employees .................................................................................................................... 44 Recruiting, hiring, training, developing and compensating all personnel..................................... 44 Stakeholders .................................................................................................................................. 44 3. Technology Development ......................................................................................................... 45 E-business technology development (Chouaib, 2009) ...................................................................... 45 In-store technology development (PRnewswire).............................................................................. 45 4. Procurement (Essaysforstudent.com, 2009) ............................................................................. 45 5. Inbound Logistics ....................................................................................................................... 46 Call-off to suppliers ....................................................................................................................... 46 Materials handling ......................................................................................................................... 46 Warehousing ................................................................................................................................. 46 Online sold products ..................................................................................................................... 46 Inventory control ........................................................................................................................... 46 6. Operations ................................................................................................................................. 47 Packaging ....................................................................................................................................... 47 7. Outbound Logistics .................................................................................................................... 47 From in stores................................................................................................................................ 47 From the Internet .......................................................................................................................... 47 8. Marketing Sales ......................................................................................................................... 48 Product, pricing, advertising and promotion, distribution ........................................................... 48 Customer value, cost to consumer, convenience, communication .............................................. 53 Sales force effectiveness ................................................................................................................... 54 9. Unique services ......................................................................................................................... 55 People ............................................................................................................................................ 55 HMVs Store Card Activities........................................................................................................... 55 The Social Space (Himelstein et al., 2009) ..................................................................................... 55 Appendix 9 Strategic Capabilities and Competitive Advantage ......................................................... 56 Threshold Capabilities (minimum needed to compete in a marketplace): ....................................... 56 Resources ...................................................................................................................................... 56 Competences ................................................................................................................................. 56 Capabilities for competitive advantage............................................................................................. 57 Resources ...................................................................................................................................... 57 Competences ................................................................................................................................. 57 Appendix 10 Sustainable Competitive Advantage ............................................................................. 58 Brand: ................................................................................................................................................ 58 Portfolio:............................................................................................................................................ 58 Appendix 11 - Ishikawa diagram for HMV UK & Ireland ....................................................................... 59 Appendix 12 Benchmarking................................................................................................................ 60 Area of Potential Improvement: Distribution ................................................................................... 60 UK & Ireland leading competitors in the area ............................................................................... 60
Goals .............................................................................................................................................. 60 Area of Potential Improvement: Website ......................................................................................... 60 UK & Ireland leading competitors in the area ............................................................................... 60 Goals .............................................................................................................................................. 60 Area of Potential Improvement: Price (value for money) ................................................................. 60 UK & Ireland leading competitors in the area ............................................................................... 60 Goal ............................................................................................................................................... 61 Appendix 13 ITC Innovation Drivers ................................................................................................... 62 1 .Innovation of product support ...................................................................................................... 62 2. Innovation of distribution via internet channel ........................................................................... 63 3. Diversification .............................................................................................................................. 63 4. New technologies: New product inside HMV even if already existing in the market ................. 63 Appendix 14 - Knowledge management ............................................................................................... 64 Appendix 15 TOWS and its analysis.................................................................................................... 65 Threats............................................................................................................................................... 65 Opportunities .................................................................................................................................... 65 Weaknesses ....................................................................................................................................... 66 Strengths ........................................................................................................................................... 66 Anaylsis .............................................................................................................................................. 67 Use HMV UK & Irelands internal strengths to take advantage of external opportunities........... 67 Improving internal weaknesses by advantage of external opportunities ..................................... 67 Using HMV UK & Irelands strengths to reduce the impact of external threats ........................... 68 Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats . 69 Appendix 16 Boston Consulting Group matrix ................................................................................... 70 1. CD & Music downloading .......................................................................................................... 71 2. DVD ............................................................................................................................................ 71 3. Video Games ............................................................................................................................. 71 4. Technologies.............................................................................................................................. 71 5. Fashion & Merchandising .......................................................................................................... 71 Appendix 17 Consideration of the 13 strategic options ..................................................................... 72 1. Integration Strategies ................................................................................................................ 72 a) Forward Integration .............................................................................................................. 72 b) Backward Integration ............................................................................................................ 72 c) Horizontal integration ........................................................................................................... 72 Intensive Strategies ........................................................................................................................... 72 a) Market Penetration ............................................................................................................... 72 b) Market Development ............................................................................................................ 72 c) Product Development ........................................................................................................... 73 Diversification Strategies................................................................................................................... 73 a) Concentric Diversification ..................................................................................................... 73
b) Conglomerate Diversification ................................................................................................ 73 c) Horizontal Diversification ...................................................................................................... 73 Defensive Strategies .......................................................................................................................... 74 a) Joint-Venture ......................................................................................................................... 74 b) Retrenchment........................................................................................................................ 74 c) Divestiture ............................................................................................................................. 74 d) Liquidation ............................................................................................................................. 74 Appendix 18 - Porters Generic Strategies ............................................................................................ 75
Chapter 0 Challenge
Background consulting study
In this information society, entertainment markets are experienced continual and rapid changes. So if a company is not prepared to undergo these changes, it can find itself in a difficult situation. HMV UK & Ireland is one of these. That is why it challenged our Strategy Consulting Firm to replace it in the market, by analyzing its strategy and provide recommendations for the future.
HMV UKs Profile

HMV UK & Ireland, part of HMV group, is the leading specialist retailer of Music, DVD/Video, Computer Games and Related Products on the UK and Ireland market. It is established now in the UK for 90 years and spread on the international scene (Canada, HongKong, Singapoure). It has been an inescapable retailer in the UK industry for 90 years but its now facing death by million downloads. The company issued three profit warnings this year as customers move out of these stores for online channels to buy CDs and DVDs. Today, about 55% of all music and video sales are through the online channel. In five years time, thats more than 90% that are going on these. HMV main problem is that it didnt see it coming 5 or 10 years ago. They are only now starting to react to the trend and, even if we can sometimes hear that it is too late, some serious report shows that we cannot predict what is going to happen and that until now they succeed in surviving and their financial capabilities does not show some proves of a future bankruptcy.
Roland Berger & Partner UKs Profile

Roland Berger is one of the world's largest strategy consulting firms, founded in 1967. The firms success and ambition lies in devising creative strategies that work; innovative yet pragmatic answers for todays business leaders, governments and public institutions. We think our firm will be able to answer properly to your inquiries. In fact, our Strategy & Corporate Excellence team taps our company's expertise to support clients in tackling key business issues, such as increasing value in order to prevent a takeover or improving performance of unprofitable business units. Other critical initiatives include preparing for market downturns or making a PMI a success for all stakeholders. The most important issue, of course, is achieving sustainable growth and profitability in the global marketplace. But there is no uniform growth strategy. We provide tailor-made solutions that are right for your company. We deliver results and present unique, individualized products to both consumers and advertising clients will be able to stay in the game. CEOs ask us to jointly design strategies and align operations in order to successfully address these issues in an environment that keeps reinventing itself.
Process following
It exists a number of environmental factors or forces that can influence the market
place behaviours, affecting the consumers or the competition just as much as business. That is why it is necessary to conduct an environmental audit of the HMV UK & Ireland to evaluate what these factors and forces are. This audit will study environmental trends and events that can potentially affect the strategy. Then the internal audit will judge the capabilities of HMV UK & Ireland to meet the needs of its target market coping with the external environment. These analysis will not only result in the identification of HMV UK & Irelands core competencies, but also in the identification of appropriate resources that will be able to take advantage of opportunities which the company does not yet enjoy. The report will conclude by giving some recommendations about the generic strategic options that will fit with your situation.
Chapter 1 The entertainment environment

1. Financial Crisis
According to the following tools:
Appendix 1 PESTEL Matrix Appendix 2 Key Drivers in the entertainment industry
The 2008 financial crisis has an impact on Europe and specifically in Ireland and the UK. Their purchasing power is still weak; consumers are reluctant to buy. However, the UK is recovering from the crisis with a positive growth rate this year (see appendix 1) as it is one of the strongest economies in Europe.
2. Entertainment Industry
Appendix 1 PESTEL Matrix Appendix 2 Key Drivers in the entertainment industry Appendix 3 Porters Five Forces Appendix 4 Life Cycle Product Analysis Appendix 5 Strategic Groups
The entertainment industry can be roughly divided into three SBUs: music, visual and gaming. The music and visual sector are slow-growing sectors since it has become at its decline lifecycle stage (see appendix 4). However some innovations and IT technologies perspectives are a great promise to re-start these sectors. Indeed, the visual market is strong thanks to its 3D movies. Music is also listened to in many different ways rather the typical CD support, in particular MP3, androids, etc. However the technology is evolving constantly and exponentially. To have a competitive advantage through innovation is a great challenge. HMVs competitors are making the difference by pricing. Indeed, Tesco has a price advantage in almost all the SBUs (see appendix 5) if free platforms and, so on, are not considered. This is an important strategy as the power of suppliers is very important and it restraints the power of retailers decisions. Video game sector is differentiating itself from the music and visual sector; it is at its maturity stage (see appendix 4) and seems to benefit from innovations, mainly wireless and mobile ones which can permit to start a new generation preparing the decline of the previous generation of consoles. In fact, the video game sector is strong and innovative. Moreover, the video games offer is not very differentiated so it might be an interesting gap to fill in.
3. Downloading
Appendix 1 PESTEL Matrix Appendix 2 Key Drivers in the entertainment industry Appendix 4 Life Cycle Product Analysis Appendix 5 Strategic Groups
Downloading has been a huge evolution in the entertainment industry. As there was a legal gap about the Internet regulation, the illegal downloading1 has grown a lot. This downloading is a huge threat which gives an important power to buyers. The British government decide to regulate this segment. The UK Parliament passed the Digital Economic Bill in 2010. The Irish government has also a strong will to fight against illegal downloading; it asked the parliament to regulate this problem but the bill is still putting up with some strong oppositions.
4. Consumer Behaviour
Appendix 1 PESTEL Matrix Appendix 2 Key Drivers in the entertainment industry Appendix 6 Market Segmentation
Consumer types are segmented in different groups. We can affirm that the rise of the Internet and its use has changed the consumer behaviour; more and more people are trusting the e-commerce and buying through this channel. Moreover, the development of IT devices creating mobility to technologies is a huge factor that has change persons life. Internet and new technologies has divided the world into two parts: the ones who are young and (want to) use and, the others who are older and dont know/want to use Internet and new technologies.
illegal downloading means acquiring a downloading file without paying any royalties to authors.
Chapter 2 HMVs Internal Audit

1. Capabilities
Appendix 8 Value Chain of HMV UK Appendix 9 - Strategic Capabilities and Competitive Advantage Appendix 11 - Ishikawa diagram for HMV UK & Ireland Appendix 12 - Benchmarking Appendix 13 - Innovation Appendix 14 - Knowledge management
Despite a high 1.24 billion turnover, HMV UK & Ireland is in a difficult financial situation. Indeed, HMV UK & Ireland doubled its debt and its shares have really collapsed this year. It would have been enough to discourage employees but HR management is much advanced that managers succeed in maintaining employees mental. They have established an open management allowing a two-way communication concerning every subject, and in spite of the crisis, they keep rewarding their employees for good performances and nourishing the work environment. Thus, the vast amount of experience and expertise among employees has not suffered of damage so they keep staying close of customers expectations. The collective experience and the competent board of director have made a more efficient human knowledge that exists within the organisation. Unfortunately they have had a late reaction in its responding to the technological change, which has cost HMV its stable position and lead it towards the problems it suffers today (especially the important in-store sales diminishing). But thanks to the retailers well-established relationship (competent and innovative partners (e-solutions and companies) and confident supply chain), it is able to pursue its business and have a second chance to enhance its strategy. Furthermore, its new ability for innovation (product support, distribution, diversification...) has offered new perspectives for success. Finally, regarding the factors which drive to the decline of the firm and the benchmarks which well-manage the solution related to these factors, the only thing missing is a good strategic planning to move up the slope.
2. Products, Distribution and Brand management

Appendix 8 Value Chain of HMV UK Appendix 10 - Sustainable competitive advantage
HMV UK & Ireland mix continue to evolve. Since 1921, HMV UK & Ireland sells CDs, DVDs, games. But following the decline of its market, HMV UK & Ireland decided first to implement an Internet strategy in 1997 (the website: hmv.com) and then to expand the product range in 2009 (technology, clothing and merchandising). Furthermore, it has seen
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right by focusing on technology, where the opportunity for range expansion in high-growth product is the greatest. Without forgetting that, it has the largest range of products on the high street in entertainment industry. And as its stores cover a wide range of location across the UK & Ireland, it reaches the more physical customers in the market. This multi-channel distribution would be a stronger advantage than it already is if these same channels were well coordinated. Indeed, if the coordination were assured, there would be more customers on each channels knowing that online and offline traffic consumers is important but neither necessary the same nor in an exclusive way. Even if they have well perceived reputation for services, these have to be improved. For instance, the website is not optimized and excludes 50% of its visitors from the previewed products because of their Microsoft technologies utilization which require people to work with Internet Explorer. Moreover, HMV UK & Ireland bad referencing on Google and other search engine prevent the company to acquire potential consumers. Therefore HMV UK & Ireland high prices compared to competitor are not always explained and they are even a strong weakness for the company. The brand is the Sustainable Competitive Advantage, since 1921, HMV UK & Ireland have built a reputable brand assuring a long-term and profitable customer relationship. The brand shares the customers perception that buying an entertainment product is not shopping but a pleasurable experience itself. The brand is closely linked with the organisational culture. In addition, HMV UK & Irelands commitment to advertising, promotion and personal appearances has, during 90 years, forged the strong image of the brand. That is true that HMVs logo, representing Nipper the Dog, remains an integral part of HMVs advertising and promotion that plays an important role in publishing the brand. It is the experience and heritage associated with the brand. Accompanied by the slogan Top Dog, this, more than representing the positioning, brings the brand to life.
3. Stakeholders
According to the following tools: Appendix 7 - HMV UK & Irelands Value Network & drivers : CDs, DVDs, Games Appendix 8 Value Chain of HMV UK Appendix 10 - Sustainable competitive advantage Appendix 14 - Knowledge management
The important stakeholder groups for HMV UK & Ireland are (without order of importance) employees, customers and shareholders. They are a public limited company so they have to communicate to each of these groups Stakeholder mapping identifies the expectations and power of the stakeholders. The Power/Interest matrix of stakeholders is important to identify potential stakeholder areas which may be an issue in times of change (Midlane, 2008).
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Interest Power Low Low Minimal Effort . Investors . Community . Charities . Artists .Environmental . Agencies High Keep Satisfied . Customers Key Blockers or Facilitators of Change . Managers . Lenders . Government
Table 0 - Power/Interest matrix of HMV UK & Irelands stakeholders
High Keep Informed . Shareholders . Employees . Fan clubs . Music awards . Suppliers
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Chapter 3 Recommendations and Implementations

Appendix 15 TOWS and its analysis Appendix 16 Boston Consulting Group matrix Appendix 17 Consideration of the 13 strategic options Appendix 18 Porters Generic Strategies
1. To Develop a R&D program

A need of R&D program is perceived New technologies have fundamentally changed our life and the business innovation system. This sector is developing so fast that it is necessary to be updated quickly to maintain a competitive advantage. New technologies are a huge growth potential to consider as physical support, such as CD and DVD, are at their decline lifecycle stage and games at their maturity stage. It is showed that the video game sector is aware of the IT context and knows how to react in consequences (e.g. wireless and mobile consoles). The option of Product Development is well-appropriated in this situation since it is necessary to develop new products on the growing segment, music downloading, and on the unexplored, movie downloading through innovative supports (USB key, etc.). HMV had to catch up with its competitors to then create a competitive advantage based on innovation. The HMVs human resources are well-qualified and well-managed to be able to adapt themselves in future. HMV by building a strong brand has also permitted to create a culture, which can be strengthened by a R&D culture well-perceived. A need of finance to develop a R&D program But HMV hasnt a strong R&D capability as it doesnt have a R&D department; it has a Finance, a HR, a Product, a Marketing, a E-commerce, an operations, an IT and a supply chain department. Providing its knowledge of retailing, consumer behavior and its human resources, HMV should consider a joint venture in order to ally its capabilities to an innovative, technologic and healthy company which want to develop its R&D program. This would help to compensate its lack of cash on short term vision. This money will be useful to start having a strong innovative competitive advantage and help overcome its financial problems by developing strategies of Product Development with its own brand products on a long term vision.
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Recommendation: To Develop a R & D program
A need of R&D program :

Development of a R&D program Product Development strategy
A need of finance to develop a R&D program: Joint-venture
Implementations Innovative technologic product from the Brand itself Innovative support: e.g. we thought that HMV UK & Ireland could create USB keys with songs already on it. USB R&B, USB classic or USB that you can fulfill with music inside the social space. Collaboration with an innovative and technologic company
2. To re-think the offer

Need a reduction of prices
Most of the competitors have lower prices than HMV UK & Ireland. But the financial situation facing by HMV (especially debts) and the fact that consumers expect a lower price lead HMV to reconsider its offer concerning pricing. In addition, HMV UK & Ireland are discounting too much and they are probably losing more money than if they just reduce their prices. But they must not reduce too much on physical products not to attain its credibility. Maybe it could develop in the social space in-store a reduction in its music prices on their platform of legal downloading also directly online but not as much (penetration of online market). That would increase the traffic of people on its stores, so the in-store sales and that would also co-ordinate the channels; people would use the online channels in-store.
Need to expand the service offer

By developing services on the core products in stores it would continue to attract customers in order to increase in stores sales. Moreover consumers would feel an offer benefit and so would prefer buy HMV UK & Ireland products. The retailer should implement some social events such as game competition in a big tailored social space in store. Thus people would promote HMV talking about it on the internet (maybe video running on YouTube and social network). Furthermore, developing this king of new concentric diversifications they again would create coordination between channels and be more efficient.
Need a dematerialization of product: to foster online product rather than physical product on the decline
HMV UK & Ireland should implement a targeted retrenchment on its range products. To develop online offers (CD bonus, DVD bonus) and progressively reduce the CD and DVD offer knowing that in a long term the only people who would buy these products would be the materialist passionate. Indeed, CD and DVD might be the next step of retrenchment as it is at its decline lifecycle and almost becoming dog products. Thus, sales performance would be improved and HMV UK & Ireland would be able to focus on its technological innovation which seems to be the more relevant strategy.
Multichannel distributor confirmed

HMV UK & Ireland should think a partnership with operators to be able to distribute music by the mobile channel what would be any beneficial. it really should enhance its overall website in this
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way the retailer would be able to leverage its UP2 ( Specialist HMV= Value + Range + Knowledge + Inspiration) across channels to avoid the only-pure-competition driver.
Recommendation: to re-think the offer Need a reduction of prices Implementation In-store distribution of less expensive online music Online music at competitive price (less expensive than now) Social events: game competition, karaoke They should innovate the service and interaction especially the rich experience of the physical store environment (sight, sound, human interactions) transferring this experience to the website through rich media (technology like chat to share the customers experiences or ask a salesman, online events, streaming concerts) Reduce progressively its CD and DVD offer
Need to expand the service offer
Need a dematerialization of product: to foster online product rather than physical product on the decline Multichannel distributor confirmed
Partnership with operator (such as Vodafone) for mobile channel distribution Website improvement: To provide more control for customers To deliver consistent information in the website To use the same name for the same product than in store (to coordinate channels) To make site product page easy to print To show inventories of all local stores
Unique Proposition
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Conclusion
Despite of what we can hear on HMV's situation, it is not as bad as this. Indeed, they have strategic partnerships, and strong capabilities which are not negligible. Settling its financial situation is the short-term strategy (cuts the non necessary cost, and adapt the long-term strategies of market penetration, retrenchment, and even the establishment of a joint venture (can be some term of the contract (to help HMV UK & Ireland to reimburse its debt) to implement in order not to lose the trust given by the stakeholders. We have proposed some long-term strategy (product development and concentric diversification) and some ideas of implementation that can help the company to re-gain its place on the market, and even to be better.
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Appendix 1 PESTEL Analysis

Political and Legal factors Politic
As the CIA WorldFact Book (2011) explains, the United Kingdom is a constitutional monarchy, whereas Ireland is a parliamentary republic. They are both politically well-established countries. However, with the 2008 crisis, the governments that were in power had been defeated in May 2010 in the UK and in February 2011 in Ireland. Financially, the two countries have debt difficulties: the British government has instilled a lot of nationalization to support its economy during the global crisis (Cbanque) and Ireland is concerned by a major financial crisis that doesnt allow Ireland to decide alone but with the EU and the IMF (Roberts, 2010). Both British and Irish governments are strongly willing to fight against illegal downloading (Rimmer, 2010 and Kennedy, 2011).
Laws
The British government has chosen to fight against illegal downloading. The Digital Economic Act, signed in 2010, has been made to increase the ease for authorities to pursue and catch persistent offenders: that is to say movie companies and music labels will be able to track IP addresses from the peer to peer network to find offenders (Rimmer, 2010). The Irish governments act for fighting against illegal downloading is in the process of passing. Controversial issues are surfacing, including statements that declare this legislation is against European laws on commerce and privacy (BBC, 2010).
Economic and Environmental factors Economy

Growth rate UK (CIA, 2011) 1.6% (2010 est.) -5% (2009 est.) -0.1% (2008 est.) GDP Purchasing Power Parity US$ 2.259 trillion (2010 est.) US$ 2.189 trillion (2010 est.) (9 th worldwide) US$ 2.154 trillion (2009 est.) US$ 2.268 trillion (2008 est.) Unemployment 7.9% (2010 est.) 7.6% (2009 est.) Ireland (CIA, 2011) -1.6% (2010 est.) -7.6% (2009 est.) -3.5% (2008 est.) US$ 208.3 billion (2010 est.) US$ 172.3 billion (2010 est.) (57 th worldwide) US$ 175.1 billion (2009 est.) US$ 189.5 billion (2008 est.) 13.7% (2010 est.) 12.4% (2009)
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Inflation
3.3% (2010 est.) 2.2% (2009 est.)
-1.6% (2010 est.) -1.7% (2009 est.) 94.2% of GDP (2010 est.) 65.5% of GDP (2009 est.)
Public Debt
76.5% of GDP (2010 est.) 68.2% of GDP (2009 est.)
Table 1: Economic Figures
Before the financial crisis, the UK and Ireland were two strong economies. The UK is still the third major economy in Europe (CIA, 2011, United Kingdom) but it has suffered from the crisis. Ireland was denominated as the Celtic Tiger, in reference to the successful Asian countries, as its growth was extraordinary. However, the crisis put Ireland in recession and significantly increased its debts. Consequently, unemployment and purchasing power have been impacted in Ireland. Whereas, the crisis has a different impact on the UK: a steady increase of inflation and a growth rate collapsing between 2008 and 2009. But the UK has recovered quite well from the difficulties (increasing growth rate and purchasing power parity re-increasing).
Environment
In 1990, with the Environmental Protection Act, the British government had made the environmental policy a law, with a pollution prevention and control over the country, in order to minimize the effects of human activity on the environment (the Parliamentary Office of Science and Technology, 2004).
Social-cultural factors
UK 62,698,362 (July 2011 est.) (22 nd worldwide) 0-14 years: 17.3% (male 5,575,119/female 5,301,301) 15-64 years: 66.2% (male 20,979,401/female 20,500,913) Age 65 years and over: 16.5% (male 4,564,375/female 5,777,253) (2011 est.) Median age: 40 Literacy3 Urbanization Consumer behaviour 99% 80% (2010) British are taking care of their benefit (price, quality, design, brand, environment) when they want to buy. Ireland 4,670,976 (July 2011 est.) (119 th worldwide) 0-14 years: 21.1% (male 503,921/female 483,454) 15-64 years: 67.3% (male 1,581,959/female 1,560,238) 65 years and over: 11.6% (male 246,212/female 295,192) (2011 est.) Median age: 34.8 99% 62% Quality is more important then, prices and services come second. Young are looking to brand/notoriety
Population
age 15 and over can read and write
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Consumers are aware of their rights and dont hesitate to use them. Consumer recourse to credit Internet users It is a loan culture. Sometimes, some British cant repay their loans. 83.6%
and price whereas adults consider brand with quality. It is a high rate of recourse to credit in Europe. 67.4%
Table 2: Socio-cultural situation
Population, age, literacy and urbanization information are found on the UK and the Irelands profile in The World FactBook (CIA, 2011). Consumer behaviour and Consumer recourse to credit information are found on the UK and Irelands profile on La Poste Export Solutions.
Culture UK (British Embassy Washington): The UK is well-known for its music thanks to worldwide bands and musicians from traditional music to contemporary music. Concerning the film industry, the UK has a wide range of films. The trend is to focus on themes reflecting life in the country. The UK also provides a lot of their landscapes and locations to international and blockbuster movies. Ireland (Embassy of Ireland USA, 2011): Music has always been an important part of Irish culture For the past century, Irish film-makers have been creating a lot of movies but mainly in amateur ways. Nowadays, some landscapes have been used in important movies (e.g. the Lord of the Rings) and alternative films are produced to show the real Ireland, not like the Ireland, foreigners have represented before.
Technologic Factors
R&D expenditures: The BERD survey (Merrionsquare.ie, 2011) estimated the expenditures on R&D in all sector activities in Ireland in 2010 at 1.8bn, which is quite lower than the previous year (1.9bn). The UK has much more significant expenditure in terms of cash terms, - 29.824bn-, but it is a bigger and richer country than Ireland. This amount is a 1.84% of GDP, a slow increasing expenditure (Office for National Statistics, 2011). Digital Infrastructure: The British Council for Science and Technology (2010) consider that the digital infrastructures are not considered sufficient for both speed and penetration and need to be improved. The technologic market is defined by a much reduced product lifetime, due to the fact that this market evolves very quickly (Evadoc, 2009). However, some categories of technologic products such as MP3 players, androids and tablets have completely changed the entertainment industrys landscape. They redefined how music, movies, games and news are used in the consumers life and behavior: with mobility and great accessibility (Jennifer L., 2008). The video games sector has a greater health than CD and DVD sector, its maintaining its creativity, a lot of new games are released every month, and the improvement of the technology
24
allows the manufacturers to release new game consoles almost every year, that people have to buy if they want to have access to the new games (Oxford University Press, 2007)4.
Gillespie: Foundations of Economics Additional chapter on Business Strategy, 2007, Pestel Analysis of the Macroenvironment, Oxford University Press. [Online], Google Access, Available at:http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm [viewed on 21st May, 2011]
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Appendix 2 Key Drivers in the entertainment industry

Financial Crisis 2008
The 2008 crisis has weakened a lot of companies in every industry. As it is also an economic crisis, consumers watch their money and their purchases. The entertainment industry has been in the front row of purchasing cuts; second-hands products and cheapest products are more considered than the usual types of products (GFK, 2010 and Nielsenwire, 2009).
Music Diversification
The CD device is in constant decrease whereas new methods to listen to music are being developed or rediscovered: concerts, festivals, venues, radio, television, internet, music platforms, etc (Julien L., 2010). So music is still something listened to and bought a lot but means are evolving.
High technology and innovation

In 2010, the computer truly went mobile. (Dowell, 2010) New technologies are nowadays usually used while moving. Indeed, they are easily *to+ be carried around (Dowell, 2010) and to use. The wireless market has been developed consequently. And even, on the games market, wireless consoles have become the new and seventh generation of games consoles, gathering people around it instead of playing with 2 or 3 persons (GFK, 2010).
Dematerialization of the entertainment industry

Products are dematerialized Internet has structurally changed companies and industries work. Some products have been dematerialized such as music and movies and are quite successful (Nielsenwire, 2009 and GFK, 2010). In fact, the growth of video On Demand and legal numeric music continues (respectively +60% for VOD and +22% for numeric music) (Klipfel, deputy general director of GFK, 2010). Services around the entertainment are dematerialized.
Since the rise of Internet, now, physical products are bought on the Internet and delivered at home. This has become a consumer behavior (Oboulo.com, 2006). This way of buying is more and more used: from 2003 to 2009, sales in this sector have been multiplied by 3.21 (44,7bn to 143,7bn). And the Center for Retail Research estimates that sales on the internet increased again in 2010 for about 12.4% in the UK (CRR, in Lefigaro.fr, Feb. 2010).
Legal and illegal: piracy and free platform

Piracy
Off-line According to Lepetitjournal.com (LJP Dublin, 2009), Ireland knows an under-economy about DVD: Half of the DVD sold is pirated. Piracy has always existed under all formats of movies support and music CDs. On-line
Illegal downloadings have developed exponentially. Copy and sharing freely have
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been the behaviors of a lot of people these past years on the web. Physical music has suffered from this development (Oboulo.com, 2008), especially because gaps are or were present. Piracy is a major concern for artists, authors and publishers. Continued growth of new and existing digital formats will intensify of illegal usage. (Nielsenwire, 2009) In this context, the UK parliament passed a law, the Digital Economy Bill, to restrict downloading and unable authors not to be pirated (Julien L., 2010). Free Platform Legal and free platforms have developed to provide music while surfing on the Internet, such as Deezer, Jamendo, Musicovery, etc. But these platforms are not profitable. It might disappear for the benefit of not free and subscription platforms. (Dupuis, 2009)
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Appendix 3 Porters Five Forces

We have to segment the different activities of HMV to have a better overview of the society and its activity. For HMV UK we can spot three main SBUs (strategic business unit): music, DVD, video games.
Figure 1: HMV UK sales structuration in 2009-2010 and in estimations in 2012-2013 (HMVgroup, 2010)
Music:
Competitive intensity:
The music is one of the main SBUs of HMV and is therefore the most profitable of the firm. It represents almost 80% of the UK music retailing market and thus is the market leader in the United Kingdom and Ireland. Despite this, the sales continue declining about 10-15% (HMVgroup) a year, and its on a continuing path for the next few years. This is not because of physical competitors but virtual competitors. Indeed more and more people now buy music via downloading platforms such as iTunes, Amazon, Virgin.com, Play.com etc.
Potential new entrants:

The music industry is nowadays very messed by technologic factors (Le Barillec, 2006). Indeed since the evolution of informatics and the integration of it in everyday life, the way of listening to music, watching movies, the culture approach, etc. have undergone a big change. More and more people only listen to music thanks to their MP3 player, their computer, etc. Because of this, the sales of CDs in shops have decreased. Downloading is much easier, you can download the type of formats you want to, it is less expensive, you dont have to go out, etc. The number of downloading platforms such as iTunes could very well be multiplied in the next few years. It would be a real benefit for multimedia
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companies, telecom companies, and informatics companies (e.g. Apple).
Bargaining power of suppliers

The number of music producers is very small and because of that their power is very strong. The main producers nowadays are: EMI, Warner, Universal, SONY BMG and some independent labels (Warp Records, Melankolik, Deutsche Grammophon) (Evadoc, 2009).
Bargaining power of buyers

The power of the clients becomes more and more important since they are able to download. They are now very exigent about the price, the packaging (more and more important to catch the clients attention), and so on.
Threats of substitute products or services

The main threat is obviously: downloading. Its a real threat for the music industry, not only the retailers.
Movie:
Visual is the leading product category. Indeed it provides about 45% of the revenue of HMV sales and remained the highest growth category last year (UK volumes up about 9%). It is also the DVD retail market leader in England and Ireland (Stockdill, 2011 and Ferguson, 2002). But according to their prognostics, this segment will decline about 5% a year in the next few years (HMVgroup). We can also hope that 3D movies will be profitable for the market.

The visual industry nowadays has exactly the same problem as the music industry. Evolution of informatics and the easiness of downloading movies or watching movies thanks to streaming sites or TV on demand, has had a huge impact on consuming behavior. It is easier to stay at home and much cheaper. One more time it is a real benefit for multimedia companies, telecom companies, and informatics companies.

The problem is the same for music suppliers, however there are just a few of them. Their power is also very strong. Since the recession they became really careful about their retailing strategy: more and more often they ask for having credit insurance in case the sales are not insured. If HMV refuses this credit insurance, suppliers dont even provide the materials (Kesha, 2011).

Downloading also involves the visual industry. That is why buyers become more and more demanding of a competitive price and packaging, etc. But a new concept has appeared in the last few years: TV on demand. The consumers dont have to move from their house and they just have to go on the internet to watch a movie (with the same quality as a DVD or
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blue ray disc) at low cost. Consumers are now very attentive to the price of DVD/BLUE RAY because of these others alternatives.

As a market leader, the other existing competitors such as Virgin Megastore wont be a threat but many substitute products exist: TV on demand, Streaming websites, movie rental shops, and downloading. HMV has to be very aware of these new concepts.
Video games
The results of HMV are really bad concerning video games, indeed the UK market for gaming software and hardware has declined about 25% in value (HMVgroup) and HMVs sales fell about 8%, but this is due to the maturation of the market. HMV hopes that this market will return to growth with a new generation of consoles. We can add that HMV is not the market leader in video games retailing, the famous game retailers GAME is the actual market leader in UK and Ireland (Game group). A lot more competitors are also in the marketplace: Game stop, virgin megastore, game station, etc. This market is therefore a very competitive market.

Online video games are becoming more and more popular. It can be bought, and played online as the MMORPG (Massively Multiplayer Online Role Playing Games): retail stores such as HMV then become useless. It could become a serious issue if online gaming becomes a large part of the segment of video games.

The problem remains the same as visual and music. The suppliers have a huge role in bargaining decisions.

The power of the buyers remains very important because of the number of competitors. The consumers can easily find the same products in other video game retailers. Downloading and hacking (for consoles) are also two important problems giving power to the consumers.

The only substitute products we can find in this market are the downloaded video games and hacked video games.
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Appendix 4 Life Cycle Product Analysis

There are 4 steps in the life cycle analysis: introduction, growth, maturity and decline.
Figure 2 The Life Cycle Model
Many elements can determine in which stage the product is located within. The current economic situation is one of them, but also the competitiveness of the market, that could cause the quick arrival of a saturation situation. The market environment can be influenced by political and economic situations, the technology innovations and so on. For HMV, considering the products that they are selling, the worst for them is the technologic environment, with the advent of the internet and digital downloading, that could be legal, but most of time that is not.
CD industry
In this climate of quick technologic evolution, with the economic crisis, the competitive market and the illegal downloading now available, it is obvious that the CD industry is in the final step of the life cycle: decline. This is mainly explained by its competition by other storage devices that are a lot more successful (MP3 storage, Androids, Tablets) (Scribd, 2020). The advents of the new MP3 market also cannibalizes the CD market and will end its life by making it disappear (Soldera, 2007).
DVD industry
The DVD industry has the exact same problem as the CD industry: basically what could be downloaded is actually downloaded: movies, music, even books, or others. The DVD industry is one of the most hurt by downloading, and a lot of DVD shops or DVD rentals have closed down during the past years because of the technology innovation that brought downloading.
Video Game Industry

The video game industry is in its maturity phase. The sector is still creative but there are many competitors and they are aggressive in terms of marketing. This sector is now over 50 years old (from the very beginning), and has experienced great development since the 1980s. From this decade a lot of companies began to manufacture video games and consoles, with more or less success, but its still a very competitive market today, with more and more rivalry every day. It is still booming, but even the video game market is being hit by the downloading phenomenon (Peltoniemi, 2008).
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Appendix 5 Strategic Groups

Situation by SBU
Music
Table 3 Music SBU characteristics
Company
Amaz on
HMV Play. com
WH Smith
Tesco
Sainsbu iTunes Free Out of Platfor rys ms

3 3 3 6
Point of Sales (POS) Stores (1) Online ordering (2) Downloading (3) Range of offer Range of Products (downloading possibilities are included) Services Response to Customer Expectations (Range of offer + POS) Price (1 low 10 high) Customer Loyalty and Brand Awareness
0 2
1 2
1 2
1 2
1 2
1 2
0 0
0 0
9 2
11 4
9 2
9 3
11 3
8 2
15 5
1 (only 3 downloa ding music)
7 14
7 17
7 15
6 12
8 17
6 11
5 9
4 10
10 21
10
10
32
33
Visual Industry
Table 4 Visual SBU characteristics
Company
Amaz on
2
HMV Play. com

3 3
WH Smith
3
Tesco
Sainsbu Strea rys ming

3 3
Rental Out of DVD

3 6
Point of Sales (POS)

Stores (1) Online ordering (2) Downloading (3)
0 2
1 2
1 2
1 2
1 2
1 2
0 0
1 2
Range of offer
Range of Products (downloading possibilities are included) Services
10
15
7 11
7 12
7 12
6 11
8 13
6 11
5 11
4 10
10 21
Response to Customer Expectation s (Range of

offer + POS)
Price (1 low
10 high)
10
Customer Loyalty and Brand Awareness
10
34
35
Games Industry
Table 5 Games SBU characteristics
Company
Amaz on
5
HMV Play. com

6 6
WH Smith
3
Tesco
Sainsbu Game rys

3 1
Out Arcades Free Arcades of

1 3 6
Point of Sales (POS)

Stores (1) Online ordering (2) Downloading (3)
0 2
1 2
1 2
1 2
1 2
1 2
1 2
1 0
0 0
Range of offer
Range of Products Services
10
10
10
11
10
15
7 15
7 15
7 16
6 11
8 16
6 11
7 14
7 11
5 11
10 26
Response to Customer Expectation s (Range of

offer + POS)
Price (1 low
10 high)
10
Customer Loyalty and Brand Awareness
10
36
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Appendix 6 Market Segmentation

The market segmentation is explaining that there are different market segments. The three markets of the entertainment industry are all divided by the online factor. Products are identified as dematerialized and materialized products. This division is highlighting the digital fracture; some people, usually the elders, are not using internet in their daily life and are not familiar with IT devices. On the games market, the online factor is accentuated by the geek culture, which is the culture of passionate persons about IT and gaming. They are more present on the games factors but can be very interested in new technologies (tablets, android, mp3, etc.) and will buy online products to use these technologies. The markets can also be separated into another category, which is the world of passion (HMV blog). In addition to the geek, there is also the passionate about music or films. These categories are people who are more likely to buy physical supports to feel the product and appreciate everything to do with it (cover, booklet songs, etc.). Passionate people will also go to live concerts to see their favorite band/singer. This type of market segmentation is for all ages. Festivals are a bit different, since it is not about a specific type of band, but more about the ambiance there. It is a sort of passion too but that might not touch all ages, and more for teenagers and adults between the ages of 15 and 40 years old. A third category of segmentation will be the mobile use of technologies. The people who are traveling and moving a lot are more interested in using mobile devices which can have their songs and movies they like. So they usually go on a downloading platform to buy these products to use them easily on their new technologies, mainly the young and adult segment (15-40 years old). By opposition, you will have the people who are not very mobile, mainly the eldest, buying physical products. This opposition is present as well for video games but the consumer segment is a bit different since elder people dont really play those games but young and adult segments usually play in family with stationary consoles. In contradiction, you have the individuals in those segments who are traveling a lot, who are using the mobile consoles. Finally, the fourth segmentation will be the economic factor. Indeed, wealthy people will be more likely to buy physical products that are more expensive than digital ones since it has a physical cover or it needs funds to organize a festival/concert. This will be mainly true for the music and movie industries. Stereotypically, wealthy people might be the adults and elder persons and the modest people might be the youngest.
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Figure 3 Music Segmentation
Figure 4 Game Segmentation
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Figure 5 Visual Segmentation
The model had been constructed with the help of Dossier Marketing Vivendi (Charles V., 2009, pp 32-34)
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Appendix 7 - HMV UK & Irelands Value Network & drivers: CDs, DVDs, Games
Figure 6 HMV Value Network
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The value network is the inter-organisational links and necessary relationships to create the products. This is the value network and drivers for CDs, DVDs and Games which represent 93% of HMV UK & Irelands sales. From the prime resources (tangible, intangible, human) to the distributors (HMV UK & Ireland and its competitors), each intermediary adds value to the products and therefore increases the prices. For example, HMV UK & Ireland buy their products, add marketing, communication and services (an attractive place to make choices, people who can advice consumers on their purchases...) and then they sell the products for more than what they bought them for originally. See HMV UK & Ireland value chain.
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Appendix 8 Value Chain of HMV UK

Each activity of a firm can contribute to a competitive advantage. Each must be analyzed to determine its strengths and areas for improvement.
Figure 7 Value Chain Model
1. Infrastructure
General management (Hmvcarreers) Head office in London: - Over 300 colleagues - 8 departments (finance, HR, product, marketing, e-commerce, operations, IT and supply chain.) In store: - 250 HMV stores across UK and Ireland - Team colleagues on the sales floor, in the stock room, in the cash office or in loss prevention Distribution: - 3 distribution centres: Canning Town in London, Merlin Park in Birmingham, Guernsey Data network infrastructure Key to stay ahead of the competition is HMV data network infrastructure, which provides the core framework for the delivery of the applications on which its business relies. HMV chose PrimeCare, the IT network support division from Prime Business Solutions. Therefore HMV beneficiates from all PrimeCares Capabilities (e.g. strategic relationships,
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technical expert... Recent changes There have recently been changes in Organisation Structure. They reorganised some of the key business area within the organisation. For example, to be more responsive to the pace of changes in their markets they have introduced new skill sets, new expertise, and new functions. They arranged some of their operations. For example the IT and fianc functions have been brought together into a shared service centre which has made them more effective and more efficient (Midlane, 2008). 40 HMV stores are supposed to be closed at the end of the year 2011. On Sunday January 30, the first wave of closure took place shutting smaller secondary outlets in locations where the company has larger stores: Birmingham, Croydon, Ealing, Glasgow, Liverpool, Nottingham, Oldham and Plymouth (Cardrew, Jan. 2011).
2. Human Resource Management

Full time employees: 5,000 (Design Council) Brand and employees The brand is closely linked with organisation culture including attitude and nature of the employees who are knowledgeable and enthusiastic as they share the same interest on the products. (Chapter 15) Recruiting, hiring, training, developing and compensating all personnel HR plays an important role in differentiate HMV brand from other specialist retailers. After hiring in-store staffs, for example, they delegate them to have a specific area of buying responsibility in order to create a trustful relation between the staff and the customers (because they know their customers the best and so are able to respond their expectations the closest). Therefore, staffs are more adept and it enables HMV UK & Ireland to maintain high calibre personnel (Chapter 15). The most important factor in HR is the work environment and in the company it is a safe and happy environment that puts employees at ease. HMV UK & Ireland try to find out and anticipate about what their employees want. They regularly give them survey to be sure to be close of their expectations (HMV). They have an open management where their employees can discuss about everything (companies policies, sales, clients, contracts, goals, new ideas for improvement...), its a two-way communication. Thus they feel more motivated and enthusiastic and the company is able to find the talents among them. That helps also in building trust (HMV). Good performances are recognized (publicize to the other employees) and rewarded (commissions, days off, bonuses...) (HMV). Stakeholders The important stakeholder groups for HMV UK & Ireland are (without order of importance) employees, customers and shareholders. They are a public limited company so
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they have to communicate to each of these groups (Midlane, 2008).
3. Technology Development
In theory, HMV enjoy all the technological development of its partners, and beyond all the partnership evoked in this value chain, here are others important technological development depending on the channels. E-business technology development (Chouaib, 2009) The technology is an opportunity for e-business (that expand physical UK & Ireland business to the international) to eliminate certain barriers such as time, space, language, cultural, legal and infrastructure issues present in the physical markets. Their strong relationships with the giant information technology, Microsoft, prevent them to reach all potential consumers. Indeed, music previews and movie clips are broadcasted in proprietary format of Microsoft, respectively Windows Media Player and Windows Media Video that are legible in Internet Explorer but not in Mozilla, Opera... Internet explorer is used by almost 50% of all visitors that makes HMV ignoring the other half of visitors. In-store technology development (PRnewswire) Liquid Audio Software is used in digital download kiosks that will enable HMV in-store customers to create their own customised CDs. This is the launch of U-Mix -- an in-store shopping service that will enable customers to preview selected songs and create custom compilation CDs from digital music kiosks in-store. HMV, known for pre-empting trends in retailing, selected Liquid Audio, Inc. to supply the technology for the U-Mix kiosk, which it will pilot at its Oxford Circus flagship store in London.
4. Procurement (Essaysforstudent.com, 2009)

HMV divides up their core stock under the following headings: music albums, music singles, classical, video, DVD and games. After sourced the appropriate products, HMV will undertake negotiations in the buying process. In addition to their core stock, HMV will offer impulse good (e.g. blank video to add promotional techniques). Even if now, because of the retail volume growth, manufacturers serve retailer through regional distributor, HMV purchase its products directly from the few record manufacturers. HMV stock a wide variety of products throughout a number of ranges. Short lead time will be weekly for some products, i.e. stock will be changing every week allowing HMV UK & Ireland to maintain the latest stock listing. The stores will need to generate space for the product lines. Promotion will be placed on dated stock to make space for new products. HMV also have a selection of classic product lines, for example music from the 80s. These products have a longer lead time and HMV will only replenish these items when they are needed. HMV has a direct line to manufacturers, so they often receive games well before the release date.
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HMV uses EDI (Electric Data Interchange) system, since 1997, to manage their supply chain: coordinate transaction and initiates deliveries. It is used for ordering stock to twentyseven suppliers and has built trustful relationships.
5. Inbound Logistics
Recently, SDI Group, innovative provider of systems and solution to the retail industries for all aspect of distribution centre materials handling, has provided HMV UK and Ireland a total logistics solution package which includes materials handling consulting, as well as design, engineering fabrication, installation and services (Sdigroup, 2008). Call-off to suppliers - The majority of the suppliers of HMV UK & Ireland are from the country and foreign exchanges are limited (HMV group, 2009) - Altech : suppliers of labelling machine (Website of Alteck) - Unipart group provide effective supply chain - HMV UK & Ireland chose Txt e-solution (demand forecasting and replenishment solution: based on Microsoft technology that provide coverage for the entertainment value chain): the very short product lifecycle of the entertainment industry implies difficulties for predicting the demand, so they chose this e-solution to facilitate deeper collaboration with its suppliers (help to have the right product at the right time). That enables a reduction of cost and to make profit on an effective selection of product. (Website of Txt Group) - HMV buys the majority of its stock directly from manufacturers contrary to its rivals. (Wilson, 2008) Furthermore they have excellent relations with them and have never had difficulties in obtaining stock. (Laing, 2011) - TAG Company, a leading supplier of Electronic Article Surveillance (EAS) products and services, secures Exclusive Agreement with HMV (EAS Hardware, Maintenance and Consumables). (Tagcompany, 2010) Materials handling - They have done a reduction in transportation (HMV group,2009) Warehousing - HMV has distribution centres which have a key role in the supply chain, delivering stock to stores and consumers from their supplier. Online sold products The warehouse is in Guernsey because packages sent from Guernsey below 18 in value are exempt from VAT (HMV can charge less for CDs and DVDs) (Music Week, 2005). Inventory control - They have a best-in-class inventory management system to manage their fast moving chart and deeper range inventories (HMV group, 2009). - Inventories are stated at the lower of cost and net reliable value on a first in first out basis (HMV group, 2009).
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6. Operations
Packaging Since the partnership with SDI group, HMVs packaging dispatching operations are less much labour-intensive without products being handled on several occasions during the process. Now they can package and label 6, 000 pieces per hour. Their solution integrates four packaging machines (Sdigroup, 2008).
7. Outbound Logistics
From in stores Customers have a walk in the store. They choose their items. They pay. And their items are theirs. If the items are not in the store they can order them and pay the day of the order or the day of the delivery. From the Internet
Warehousing
The warehouse is in Guernsey because packages sent from Guernsey below 18 in value are exempt from VAT (HMV can charge less for CDs and DVDs) (Music Week, 2005).
Picking & Order processing
Once the customers have selected a product they click on the add to basket button underneath. They can create a personalised list of all the things they want to buy by creating a wish list. Then they can add a product to the wish list by clicking on the add to wish list button. If the customers are not already logged into their account they have to log in by clicking on my account link at the top of the homepage and enter their email and password. They can check out the process (i.e. review the items in the basket), they just have to click review basket to review their order (Website of HMV). By submitting an order, they are accepting the Terms and Conditions of the HMV web site. Orders for the sale of downloaded music are made with, and subject to the terms of the End User Licence of HMV UK Limited (Website of HMV).
Shipment
Since the partnership with SDI group, packaged merchandise from Guernsey distribution centre, such as DVDs and CDs, is fed directly from the automated packing machines, with customer address. (Sdigroup, 2008) Each item of the customers order will be charged and shipped separately, as soon as it is available in HMV UK & Irelands warehouse (Website of HMV).
Delivery
HMV UK & Ireland post a courier for the goods ordered. The delivery is made as soon as possible after the order. The customer becomes the owner of the goods he or she has ordered (Website of HMV). Depending of the type of delivery (UK Standard Delivery, UK Express Delivery, Standard Airmail, Overseas Courier Delivery), customers will be charge differently (Website of HMV).
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8. Marketing Sales
Product, pricing, advertising and promotion, distribution
Figure 8 The Marketing Mix: the Four Ps
Product: - HMV UK & Ireland was first selling music, video, games (HMV group case study, 2010) - HMV has, over the last three years diversify into new and related-entertainment product areas (technology, clothing and merchandise). This strategy leads them to conclude that they must accelerate HMVs product mix evolution, with a particular focus on technology, where the opportunity for range expansion in high-growth products is greatest (Daily Mail Reporter, 2010). Indeed, the main driver of the growth from new product is the Technology and it is forecast to increase from 6% to 12% by 2013 as it is shown on the Figure 1. Theyll launch Smart Phone gaming offer on the HMV website in partnership with Orange. Fashion is also expected to grow increasing of 6% by 2013. This diversification has helped to survive (HMV group case study, 2010).
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Figure 9 HMV UKs sales mix 2006/2007 2012/2013
All the ideas of product have to meet certain criteria: (HMV group case study, 2010)
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Figure 10 HMV new product selection criteria
Live event: HMVs acquisitions and ventures have diversified its portfolio. They are the following: (HMV group case study, 2010) Mama Group (live venues, festivals and artist management) HMVtickets (provided a platform to the retailer for selling tickets for the live events) HMVcurzon cinemas (has been proved successful) Gamerbase (customer can try consoles and games before purchasing) Pricing (Himelstein et al., 2009): According to the survey of Himelstein et al., a basket of purchased in-store goods are about 7.4% more expensive that the same purchase online.
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Figure 11 Pricing Survey
Prices Many products show inexplicable price variances. However, some price discrepancies across channels can make strategic sense as they leverage a specific property of a channel. For example, a promotion offering 4DVDs for 20 in-store can be an enjoyable browsing experience predicated on serendipitous visual browsing and discovery (Himelstein et al., 2009) whereas, it could be an unpleasant and less attractive experience to search through the website. While the offline environmental offer an attractive visual search, online enable the speed of a specific search (Himelstein et al., 2009).
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Advertising and Promotion:
- The strong image of HMV comes from the companys commitment to advertising, promotions and personal appearances. HMVs logo, featuring Nipper the Dog (dog and trumpet), remains an integral part of HMVs advertising and promotion that plays an important role in publishing the brand. Its the experience and heritage associated with the brand. Accompanied by the slogan Top Dog, this, more than representing the positioning, brings the brand to life (Superbrands). - HMVs overall marketing strategy is rooted in the need to generate new and maintain existing customers with an abiding interest in entertainment - music, video and games. In-store design is tailored to creating atmosphere and ambience via video screens, listening posts, graphic elements and the like. (Superbrands). HMV want to make its stores attracting, exciting to visit and simple to shop for the customer. - In addition to strong merchandising activity, HMV pursues an aggressive marketing strategy across a broad spectrum of media, including TV, radio, posters and press advertisements. HMV actively promotes more than 500 different releases in any one year via co-operative advertising approaches. Personal appearances by the rich, famous and musically talented - celebrities such as Bon Jovi, Sir Elton John, Public Enemy, Van Halen, Kylie Minogue, David Helfgott, kd lang, Lenny Kravitz, Celine Dion, and more recently shock rock star Marilyn Manson - generate consumer interest and a wealth of PR activity (Superbrands). - Most major brand promotion are co-ordinated across channels, although local store manager have some discretion to tailor smaller promotion to local tastes (Himelstein et al., 2009). - Customers promote the company (products and websites) developing loyalty, thanks to the community sites, sharing their experience. Distribution: multi channel distribution HMV are present on high street and e-commerce channels such as: - HMV.com: Positive evolution since the creation of the website. Revenue and visits have increased to significant levels (HMV group case study, 2010). - HMVdigital.com: HMV established a joint venture with 7digital (HMV owning 50% equity stake) in September 2009. Important for the B2B market. The company has now experimented social media not only opening a Facebook shop but also creating their own networking site. HMV UK & Ireland has opened a Facebook shop. Ilana Fox (April 2011) wrote an article ensuring that Facebook shops are a flash-in-the-pan trend that wont increase retailers profit. She argued that expecting people to use this mini
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version of a shop shows that you dont know anything about how communities behave online (New Media Age, 2011). The networking site Get Closer at http://getcloser.com, establish a community among its loyal customers. They have also launched a blog site at http://blogs.hmv.com, promoting their new products thanks to opinion leading staff. But they are not promoted in-store (absence of messaging). The only channel HMV is not present is the mobile channel which could open new way for entertainment transactions in the future (Himelstein et al., 2009). Customer value, cost to consumer, convenience, communication
Figure 12 The Marketing Mix: the Four Cs
Consumer value: Customers are passionate about the products, sell by HMV UK & Ireland, which derive from customers experience. The brand shares the customer perception that shopping for the product is not buying but a pleasurable experience. Change is led by customers (Chapter 15). Cost to consumer: (Website of HMV) - Charges are in UK Pounds. - From an internet order, for an overseas order, the customer will be charged in his or her respective currency based on current exchange rates.
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- Prices in customers shopping bag are the current prices of the goods and the amount theyll be charged for. - Prices from the website may be different from the stores and are subject to change without notice. Convenience: - Multi-channel (online, in-store, direct catalogue) to satisfy the maximum of customers. Integrate multiple channels lead to a more relevant retailer to more customers (Himelstein et al., 2009). - Online channels and offline channels are complementary to enable in-store staff to access customer data and to really understand their customer in order to put them at the centre of their business decisions (Himelstein et al., 2009). - For an optimal customer experience HMV has to focus on three factors (Himelstein et al., 2009): o Choice: the customer can control the way he wants to interacts with HMV o Consistency: information are consistent across all channels, but there is a lack of coordination between channels. Languages can also be an issue: e.g. The website is visited by different nationalities and culture, and each visitor has to think this website has been done for me. But diversity of languages in HMV UK & Ireland website has not yet emerged contrary to the stores (Chouaib, 2009). o Continuity: all customers have a unique id number that is recognized by all channels Communication: - Bad referencing on big search engine: Google, Yahoo, Bing, and MSN by using following key words: Music, Download MP3, names of famous singer, Buy MP3... That is important not to neglect a big part of visitors (Chouaib, 2009).
Sales force effectiveness

- Turnover: 1.24 billion in 2010 (Facts and Figures, HMV). - HMV UK & Ireland total sales down 15.3%, including like for like sales down 16.1 % (Investis, 2010). - Seasonal loss has doubled compare to 2009 - The continuing decline of the music and visual markets and, the discounting and range extensions by supermarkets have led to some share loss in HMV UK& Ireland. Indeed, even if HMV broadly hold music share in the physical market with growth in digital resulting, in visual they have undergone share loss (Investis, 2010). 45% of sales come from visual, 28% from music (Facts and Figures, HMV). - The most challenging market was the games with a decline of 38% in the last two years while HMV was holding share continuing to develop its played game offer and selling up 45%. The sales of the other products increased of 20% the last 2 years reflecting strong growth in the technology offer and the launch of the entertainment-inspired fashion ranges in September 2010 (Investis, 2010).
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24% of sales come from games and technology (Facts and Figures, HMV). - The new Live division (venue business, HMV Tickets) perform strongly even if established festivals have underperformed against expectations, knowing that their, now finalised, acquisition of Mama Group has resulted in a decrease in the fair value of the net assets acquired. (Investis, 2010) 3% of sales come from related-entertainment product (e.g. product and fashion clothing ranges inspired by music and film) (Facts and Figures, HMV).
9. Unique services
Beyond threshold services such as online services (reservation, payment, free delivery...) or in-store services (space offered for physical presence of products, etc.), there are unique services that participate in reinforcing the competitive advantage. People Employees are aware of and understand customers expectations and needs. They really try to narrow the gap in customer services. They also try to close the knowledge gap for an effective and more personalised touch in their operations. HMVs Store Card Activities - The first specialist retailer of entertainment product which offer a branded store card product (in August 2003). This card is an instrument in securing communication between HMV and its regular customers. It gives access to: The HMV rewards programme, Special offer and promotions, Advance notice of in-store events and to entertainment news, And, other benefits (access to a secure part of the website (www.hmv.co.uk): exclusive online offers that can be paid through the HMV Card account. While HMV is able to be closer to their customers expectations (Commission Competition). The Social Space (Himelstein et al., 2009) Customer can listen, watch and click to buy if they scan barcodes on CDs and DVDs interacting with large screen of Apple computers. Their purchases can be delivered at home, downloaded to memory sticks or via digital music players. This cool experience brings this advantages and format flexibility of the digital world right into the store.
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Appendix 9 Strategic Capabilities and Competitive Advantage

Threshold Capabilities (minimum needed to compete in a marketplace):
Resources - Financial resources: Turnover 1.24 billion in 2010 (HMV group, 2010) - Human resources: Full time employees: 5,000 (Design Council) with over 300 colleagues working in the head office, The board of directors: Simon FOX is the CEO and Managing Director HMV UK/Ireland (HMV group, 2010). Being both might not help to manage well each of them. Mr. Fox is also chairman of Mama Group plc and Independent Non executive Director of Guardian Media Group plc. Robert SWANNEL is the former chairman of HMV group and now non-executive director of HMV (Hall, 2011). By staying, Mr. Swannel can bring all his expertise of being the former chairman. Philip ROWEL is the new chairman of HMV (Hall, 2011). As former non-directive director of HMV, he has some knowledge of its strengths and weaknesses without taking time to learn about them. - Intangible resources: Training and expertise of the sales force - Tangible resources: 250 HMV stores across UK and Ireland with head office in London, 3 distribution centres Competences Threshold competences: - Effective logistic management including distance selling - After Sales Service - Board of Directors: Robert SWANNELL is chairman of Mark & Spencer Group, which brings him some retailer experience. Mr. Swannell has mainly been a senior management in investment companies: Citigroup Global Markets Limited, British Land Co. Plc, 3i Group plc and has an accountancy background which brings some competencies about finance issues. Philip Rowley was a member of technology companies board (Tradus plc and Misys plc) and was CEO and Chairman of AOL Europe (until 2007) which brings him some awareness about IT.
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Capabilities for competitive advantage

Resources Unique resources (difficult to copy or obtain): - Intangible resources: Very well-known and trusted brand - Tangible resources: many unique partnership, and venture (Mama Group...) Competences Core competences (add value, better level of performance, difficult to imitate): An expert diversification: they are much diversified and the staff is extremely competent in each sector of diversification.
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Appendix 10 Sustainable Competitive Advantage
The sustainable competitive advantage can be defined as scarce, relevant, durable, immobile & unreplicable.
Brand:
Since 1921, HMV UK & Ireland have managed to build a reputable brand name assuring value for money (Website of HMV). The HMV Brand has built a long-term and profitable customer relationship. (See more details in the Value Chain)
Portfolio:
And complementarily, their variety of their product offerings also has contributed to various reasons why people choose HMV (Website of HMV).
Figure 13 Product Range
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Appendix 11 - Ishikawa diagram for HMV UK & Ireland

Figure 14 Fishbone Model
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Appendix 12 Benchmarking
Area of Potential Improvement: Distribution
UK & Ireland leading competitors in the area Game Group PLC: Even if they are younger than HMV in multi channel distribution, they have understood the fact that all the channels have to support each other explaining the advantages of each one compared to the other in order that the customer knows exactly where he goes when he chooses his favourite channel to buy products. Goals - To promote each distribution channel through one another. - To communicate the same message though all the channels, explaining how they are different and the different options available according to the customers choice.
Area of Potential Improvement: Website

UK & Ireland leading competitors in the area Amazon (McCowley, 2000 and Webdesigner Depot, 2009): The focus on Amazon website is the product search and online buying. Whenever possible, the content is unique for each user. They create sales incentives by giving Why shop with us reminders. They give their products as much exposure as possible. They try not to make the user feel as if some products/services are being forced on them, on the contrary they make the shopper feel comfortable and in control at all times. Flash Media Enterprise Server 4 running on Amazon Web Services: an easy access to P2P functionality, major enhancements to playback experience, and quality of service, and support for F4F packaging for HTTP streaming (Adobe.com). Goals - To change the website so that it can be checked via all browsers (Mozilla, Safari...). - To find a software player music especially for HMV to protect it music MP3. - To implement a more dynamic website.
Area of Potential Improvement: Price (value for money)

UK & Ireland leading competitors in the area Play.com:
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Figure 15 Pricing Survey
Goal
- To reduce the gap between in-store prices and online prices
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Appendix 13 ITC Innovation Drivers
Figure 16 The Changing Role of ITC in Business
Sources: Farbey et al., 1993
Existing customers Existing products/services 1. Innovation of product support
New customers 2. Innovation of distribution via internet channel 4. New technologies: New product inside HMV even if already existing in the market: Ipod, Ipad...
New Products/ Services
3. Diversification: live events entertainmentrelated product
Table 4 Innovation Drivers
1 .Innovation of product support

For example for the music market, as they saw that customers are no longer willing to pay 15 for a CD, they decided to develop product support. There are now the limited edition (supplementary songs and a collector CD cover), the digipack (customers interest in
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rare piece of their favourite artist), CD/DVD release (including bonus video), the Open Disc format (including a book with song lyrics, pictures, internet link...
2. Innovation of distribution via internet channel

- HMV.com: Positive evolutions since the creation of the website. Revenue and visits have increased to significant levels. (HMV group case study, 2010) - HMVdigital.com: HMV established a joint venture with 7digital (HMV owning 50% equity stake) in September 2009. Important for the B2B market.
3. Diversification
Radios, headphones, phone covers, stereo systems, computer games, posters, magazines, books, T-shirt, mugs, cuddly toys, another area is the in live performance which is now about to be the more lucrative area in the music industry. The retail hopes to tap into this trend by selling tickets for shows.
4. New technologies: New product inside HMV even if already existing in the market
They just open the high technology sector in HMV stores; they now offer iPods, iPads, laptops, and blueray players. They have developed their floor space for selling electronic goods.
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Appendix 14 - Knowledge management

The aim of knowledge management is to make more efficient use of the human knowledge that exists within an organization.
Knowledge Type Tacit (Knowledge is rooted in actions, experience, involvement) - Cognitive tacit (Mental models) - Technical tacit (Know-how applicable to a specific work) Explicit (Articulated) Individual (Created by the individual) HMVs knowledge Best means of dealing with specific customers
Entertainment skills
Social (Created by a group)
Declarative (Know-about)
- Staff employed at HMV UK & Ireland have probably chosen this work because they are passionate about music/DVD/gaming. In addition their individual knowledge of new brands, album, games and console are plentiful. - By allowing the customer to rate the items they have purchased, they enable other customers who can relate much easier to the review. This may not increase sales but this form of customer service not only encourages more customers to be loyal to the business, but also prevents the customer service departments time being wasted by questions that could be answered in these reviews. - HMV has already used a company called eGain. The eGain Campaign is an e-mail marketing and proactive customer service solution. It offers one-on-one marketing techniques for planning, targeting and executing high volume direct marketing programs. HMV took time to target their mailings based on customer preferences to ensure that emails only go to people who would be most interested in them. No wasted mail, and a cost efficiency advertising.
Procedural (Know-how) Causal (Know-why) Conditional (Know-when) Relational (Know-with) Pragmatic (useful knowledge for the organisation)
Table 5 Main Knowledge of the firm
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Appendix 15 TOWS and its analysis

Threats
Financial crisis - Ireland is in the middle of a huge financial crisis Ireland and the UK have been weakened: weak purchasing power. Consumers are reluctant to buy. Ireland and UK are a loan culture that has weakened more consumers. Downloading - Bill in Ireland in process, but strong oppositions are still slowing down it - Alternative means to listen to music and see movies: illegal downloading, secondhands, piracy, free platforms - Downloading is a huge threat and gives important power to the buyers. Entertainment industry - New technologies are constantly evolving; hard to provide innovation quickly - Online gaming is seriously dangerous to physical video games - The power of suppliers is very important and restraint the power of decision of retailers. - CD and DVD industries are in their final lifecycle stage. Downloading is cannibalizing these two industries - Tesco has a price advantage in almost all the SBU - Competitors have various prices but lower than HMV; a comparison is easy Consumer Behaviour Purchasing power is one of the key factors and people can be reluctant classical segmentation, hard to organize
Opportunities
Financial Crisis - UK is an important economic country which has started to recover Ireland and UK are both based on a very strong music culture, with eclectic styles. Downloading - Government strong will to fight against illegal downloading - Digital Economic Bill, passed in UK in 2010 Entertainment industry - Music is still listened to in many different ways - New technologies has brought new perspectives of innovation and development - The visual market is strong, in particular thanks to the 3D. - Development of a new generation of consoles: wireless consoles - The video games industry is at its maturity stage. Innovation can be considered now to develop a competitive advantage.
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- Video Games offer by competitors is not very differentiated Consumer Behaviour - Rise of the use of Internet: e-commerce and buying online has become a consumer behaviour - High development of IT, mobile and online factors in consideration; a young segmentation
Weaknesses
- Financial situation: debt twice more than 2009; shares have collapsed for 1 year. - In-store sales diminishing - Bad coordination between channels - Excessive reliance on promotional pricing to stimulate sales - Non optimized website - Bad referencing on Google and other Search Engine (buy MP3, music, music seller, download MP3) - Late arrival on the online retailing - Fail to adapt to change: diversified too late - Competitors have various prices but lower than HMV; a comparison is easy
Strengths
Products and Brand - The Brand: well known brand name, strong image - Largest range of products on the high street: Very diversified (music, visual, games, live tickets, clothing, other related-entertainment product...) - Well perceived reputation for services - Multi channel distributor: offline and online stores - Good online and offline traffic consumers. - Free delivery - Wide presence on the Internet (social networks, website, blogs, etc.) Strong human resources basis - Vast amount of experience and expertise (large readily capable workforce) - Good HR Management (open management) - Stores cover a wide range of locations across the UK and Ireland and is easily accessible to the consumer Stakeholders - Many business solutions: PrimeCare,Txt e-solution, - Many partnerships: Unipart, Mama, Digital 7, etc. - Good relationships with suppliers - Well knowledge of their consumers
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Anaylsis
Use HMV UK & Irelands internal strengths to take advantage of external opportunities
1. Being a complete multichannel retailer
Music is still listened to in many different ways and HMV is a multichannel retailer (website, stores, downloading, venues, etc.). The recent growth in mobile utilization and especially for listening music is an opportunity for HMV UK & Ireland to expand its channels through the mobile one. Make a partnership with operators to be able to distribute music by the mobile channel would be any beneficial.
2. Development of R&D
The huge opportunities with the development of new technologies make innovation possible. The visual market with 3D and the wireless consoles are growing. Video games lifecycle is in its maturity stage. HMVs brand strength and open and well-qualified management are helping to make HMV grow. These statements are keys to consider developing a R&D program or even a R&D department inside the company to use the human resources and make them participating, in order to be able to develop a HMV brand innovative products.
3. Internet, a segment not to avoid
The e-commerce and the online habits has become a consumer behavior. HMV understood it and is present on the internet (website, blog, social networks, etc.). Indeed, HMV has a good knowledge of its consumers. Moreover, with the downloading growth, governments have decided to regulate illegal downloading. This will helps to transfer these users to cheap legal downloading. These considerations comfort HMV on its presence on the Internet and encourage it to develop its online propositions on the interesting internet segment.
4. Development of friendly events
HMV stores are wide spread across UK and Ireland which help to reach easily its customers, especially when UK is getting economically better. In addition, the entertainment (especially music) culture in UK & Ireland is very strong and consumers like to enjoy music and games both alone and in group. Indeed sharing the entertainment tastes is very pleasant. Like this, it helps to find people who are similar. So it is an opportunity that HMV UK & Ireland cannot neglect. They should create social events (such as game competition) inside stores and promote it on internet (blog, site...). That would make people come back on the stores, maybe increase the sales of in store products, people would promote HMV talking about it on the internet (maybe video running on YouTube and social network). Improving internal weaknesses by advantage of external opportunities
1. Attraction of potential customers
HMVs sales are decreasing in-stores and its different channels are not very well coordinated. The UK is recovering from the crisis but HMV has higher prices comparing to its competitors. However, the music culture is strong in both countries. By developing events in stores, e.g. karaokes, can attract customers in physical stores
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that are close to them. As said, before, HMV can provide information about its event on its other channels (e.g. social networks, blog, etc.) and create coordination between channels to be more efficient.
2. Improvement of their online presence
HMV is not very well referenced on search engine (see image below) whereas customers are buying a lot online and on e-commerce websites. This obvious statement makes the improvement of their online presence recommendation clear.
Figure 17 Referencing with the key world Entertainment Retailer
3. Innovate concerning the offer
In a context where innovation in high technology is fast growing and the UK is getting economically better, HMV has a difficult financial situation. Furthermore, the company is offering products at a higher price than its competitors while trying to catch up with them concerning its offer. Consequently, HMV should re-consider its offer concerning its pricing and products to overcome its financial situation. Using HMV UK & Irelands strengths to reduce the impact of external threats
1. Conservation and increasing of B to B relations
The power of suppliers is very strong and can restraint retailers decision powers. However HMV has established strong relationship with its suppliers based on trust and assiduousness. Consequently, HMV should keep and increase it B to B relationships.
2. Development of other products and distributions
The CD and DVD physical products are in the decline lifecycle stage while internet is becoming an important new channel for dematerialized products. HMV has great potential
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to respond to this context as it is present on the internet (website, blogs, social networks, etc.) and distributes by multi channels. To answer to this context, HMV should develop the new dematerialized products on the IT channels such as Internet and mobile ones. In a long term perspective, the CD and DVD offer should be reduced regarding its shares in the global turnover of HMV. 3. Generation of an offer advantage to customers In the context of the economic crisis, customers have a weak purchasing power. Moreover, buyers have a strong power on entertainment retailers since illegal downloading is huge threat. However, HMV has a good knowledge of its consumers and is well-known about its services. Considering these statements, HMV should keen on evaluating its services to make the customers feel an offer benefit and buy in HMV instead of its competitors. Defensive tactics aimed at reducing internal weaknesses and avoiding environmental threats
1. Difficulty to emerge from the crisis
In a context of crises economic crisis and materialized music and visual crisis , HMV is in a financial crisis situation. In fact, the CD and DVD products lifecycle is in its decline stage and the CD/DVD sales are decreasing. Even if customers have a weak purchasing power, HMV is operating a higher pricing system than competitors. HMV is in a tough situation to resolve its difficulties. So it is necessary to reconsider their pricing strategy to attract more customers and improve sales.
2. Development of a cheap product to buy legal music
As said above, the CD/DVD products know a lifecycle in its decline so as their sales. Even if HMV is discounting articles too often, its regular prices are higher than its competitors and are not competing against illegal downloading. Consequently, HMV should develop a new product a lot cheaper, instead of discounting too often, which can bring customers to buy legal music, attracting easily another segment of customers.
3. Development of R&D
HMV had to catch up with its technologic and strategic delay comparing to its competitors; it diversified too late and arrived late on the online retailing. However, new technologies are constantly evolving, so it is hard to provide innovation at the right time but it has to be since the CD and DVD industries are in their final lifecycle stage. By identifying these threats and weaknesses, it seems necessary to develop a R&D program or department to be always updating on innovation.
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Appendix 16 Boston Consulting Group matrix
Figure 18 BCG Matrix
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1. CD & Music downloading

Music represent in 2009/2010 28% of HMV UK & Ireland total sales which is 9% less on the total sales than in 2006/2007, and 10% more than the estimations for 2012/2013, which shows that the overall music market is in decline. Knowing that they implement the music selling on the Internet because the CD sales were in freefall, we can consider CDs as Cash Cow products and Music downloading as a star because more than restart the music sales, it enable a physical prove of HMV UK & Ireland effort to be close of their customers expectations.
2. DVD
The visual sales represent in 2009/2010 45% of HMV UK & Ireland total sales which is only 2% less on the total sales than in 2006/2007, but 6% more than the estimations for 2012/2013. That shows that DVDs sales are in decline. This explains our consideration for DVDs as Cash Cow products.
3. Video Games
Video Games sales represent in 2009/2010 18% of HMV UK & Ireland total sales which is 2% more on the total sales than in 2006/2007, and 4% less than the estimations for 2012/2013. That shows that video games sales are in growth. This explains our consideration for video game as Star products.
4. Technologies
Technology is a recent sector in HMV sales which began the last 2 years. Technologies sales represent in 2009/2010 6% of HMV UK & Ireland total sales which is supposed to double according to the estimations for 2012/2013. Thus, we have considered them as stars products.
5. Fashion & Merchandising

Fashion & Merchandising is also a recent sector in HMV sales which began the last 2 years. Fashion & Merchandising sales represent in 2009/2010 3% of HMV UK & Ireland total sales which is supposed to double according to the estimations for 2012/2013. Thus we have considered them as stars products.
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Appendix 17 Consideration of the 13 strategic options

1. Integration Strategies
a) Forward Integration Forward integration is defined as gaining ownership or increased control over distributors or retailers. (Lynch, S.) This option cant be considered since HMV is the retailer of the entertainment industry. b) Backward Integration Backward integration is defined as seeking ownership or increased control of a firms suppliers. (Lynch, S.) HMV hasnt enough capital resources to manage new business. Moreover, there are no problems with its suppliers since it has good relationships with them. Consequently, this option shouldnt be considered. c) Horizontal integration Horizontal integration is defined as seeking ownership or increased control over competitors. (Lynch, S.) There is no lack of managerial expertise. However, the entertainment industry is not growing in some segments and many competitors are present, as products are in their decline lifestyle product.
Intensive Strategies
a) Market Penetration Market Penetration is defined as seeking increased market share for present products or services in present markets through a greater marketing effort. (Lynch, S.) The market is structurally defined in two major parts: off-line and online. Off-line The off-line market is saturated; some SBU have a lot of competition. The usage rate of present customers can be hardly increased since HMV sales are decreasing and some segment (CD and DVD) are in their decline lifecycle. Moreover, the total industry sales are not increasing a lot. The off-line market penetration shouldnt be considered. Online The online market is offering a infinitive possibility but there are already a lot of competitors and customers have their habits that are difficult to change quickly. As not each person has access to the Internet and so not everyone is buying online, there is a significant potential of growth. Indeed, this online industry is growing but not as much as it can be because of the illegal downloading. The online market penetration seems to be interesting to consider. b) Market Development Market Development is defined as introducing present products or services into new geographic area. (Lynch, S.) HMV can provide new channels of distribution that are reliable and inexpensive, such as downloading platforms. This industry is also rapidly becoming global but HMV is in a very bad financial shape to develop a new market.
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This option seems interesting but quickly hard to organise because of HMV financial problems. c) Product Development Product Development is defined as seeking increased sales by improving present products or services or developing new ones. (Lynch, S.) CD and DVD industry are in their maturity stage of their lifecycle in a context of rapid and constant technological developments. As seen on the Strategic Groups matrix above (appendix 5), HMV is offering at a higher price similar products comparing to its three major competitors (Play.com, Amazone.co.uk, Tesco). They are also competing in the high-growth industry which is the MP3 music downloading, and there are still other segments such film downloading not much developed. But HMV hasnt a strong R&D capability as it doesnt have a R&D department (finance, HR, product, marketing, e-commerce, operations, IT and supply chain). Despite the fact of a R&D lack, improving and developing products can be considered as an interesting strategic option.
Diversification Strategies
a) Concentric Diversification Concentric Diversification is defined as adding new, but related, products or services. (Lynch, S.) On physical support as CD and DVD, HMV competes in a slow-growth industry as seen on the BCG matrix (appendix 16). They are in decline stage of their lifecycle. Merchandising and IT devices which are introducing a bit in stores can be helpful to attract on the core products: music, movie and games. Deciding cheap prices and develop more services can give a competitive advantage to grow. This option seems very interesting to consider due to its great potential in many satellite (around the core products: CD and DVD) products such IT devices or merchandising. b) Conglomerate Diversification Conglomerate diversification is defined as adding new, unrelated products or services. (Lynch, S.) HMV is in financial troubles and the market is saturated. However, HMV is an entertainment retailer and diversifying in a complete way would not give a clear strategy for the company. c) Horizontal Diversification Horizontal Diversification is defined as adding new, unrelated products or services for present customers. (Lynch, S.) The current customers are difficult to reach since they have a lot of many alternative ways to listen to music or to see a movie. So developing new or unrelated products in the present stores wont be an excellent idea. The best is to concentrate on the industry.
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Defensive Strategies a) Joint-Venture Joint-Venture is defined as two or more sponsoring firms form a separate organisation for co-operative purposes. (Lynch, S.) HMV, an international entertainment retailer, leader in the UK market, has financial problems. It is closing stores in Canada and in the UK but still has a wide coverage. Associating itself with a complementary industry such as an IT device can be interesting to develop its own brand with innovative products and services. It might help to develop a common R&D program to introduce new technology in a context of an IT and mobile fastgrowing industry. b) Retrenchment Retrenchment is defined as re-grouping through cost and asset reduction to reverse declining sales and profits (Lynch, S.) As said several times above, HMV is in financial troubles but it is not one of the weakest competitors for the moment, since it is one of the leaders in the UK. Performance should be improved about sales although of its high performance. One sign of troubles can also be that the former chairman resigned because he felt not being able to run the company. Waterstones has already been sold. CD and DVD might be the next step of retrenchment as it is at its decline lifecycle and almost becoming dog products (see appendix 16). c) Divestiture Divestiture is defined as selling a division or part of an organization. (Lynch, S.) HMV group decided to sell Waterstones its book specialist retailer. It was part of the most difficult industry on the entertainment one: book retailing. This sale has permitted to obtain a large amount of cash to absorb HMV group debts. This option has already considered. It shouldnt be considered again and should start to improve its core products: music, movie and games. d) Liquidation Liquidation is defined as selling all of a companys assets, in parts, for their tangible worth. (Lynch, S.) Waterstones sale is extremely recent. It is too soon to consider this option. Other options could be considered first.
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Appendix 18 - Porters Generic Strategies

After considering Porters Generic Strategies, we have concluded that it is necessary to reduce the prices for certain products but not for being the cost leadership, otherwise we world lose all our credibility. In addition, we cannot consider a differentiation because differentiated products are higher priced. Finally, we cannot consider a niche strategy as we have an important range of product.
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HMV Analysis

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HMV: a major company in the entertainment industry crisis

BA (Hons) in Marketing Jan. Dublin Business School

HMV UKs Profile

Roland Berger & Partner UKs Profile

Chapter 1 The entertainment environment

Chapter 2 HMVs Internal Audit

2. Products, Distribution and Brand management

Chapter 3 Recommendations and Implementations

1. To Develop a R&D program

Recommendation: To Develop a R & D program

A need of R&D program :

A need of finance to develop a R&D program: Joint-venture

2. To re-think the offer

Need to expand the service offer

Multichannel distributor confirmed

Need to expand the service offer

Appendix 1 PESTEL Analysis

Economic and Environmental factors Economy

3.3% (2010 est.) 2.2% (2009 est.)

76.5% of GDP (2010 est.) 68.2% of GDP (2009 est.)

Table 1: Economic Figures

age 15 and over can read and write

Table 2: Socio-cultural situation

Appendix 2 Key Drivers in the entertainment industry

High technology and innovation

Dematerialization of the entertainment industry

Legal and illegal: piracy and free platform

Appendix 3 Porters Five Forces

Potential new entrants:

companies, telecom companies, and informatics companies (e.g. Apple).

Bargaining power of suppliers

Bargaining power of buyers

Threats of substitute products or services

Potential new entrants:

Bargaining power of suppliers

Bargaining power of buyers

Threats of substitute products or services

Potential new entrants:

Bargaining power of suppliers

Bargaining power of buyers

Threats of substitute products or services

Appendix 4 Life Cycle Product Analysis

Figure 2 The Life Cycle Model

Video Game Industry

Appendix 5 Strategic Groups

HMV Play. com

Sainsbu iTunes Free Out of Platfor rys ms

1 (only 3 downloa ding music)

HMV Play. com

Sainsbu Strea rys ming

Rental Out of DVD

Point of Sales (POS)

Response to Customer Expectation s (Range of

Customer Loyalty and Brand Awareness

HMV Play. com

Sainsbu Game rys

Out Arcades Free Arcades of

Point of Sales (POS)

Response to Customer Expectation s (Range of

Customer Loyalty and Brand Awareness

Appendix 6 Market Segmentation

Figure 3 Music Segmentation

Figure 4 Game Segmentation