Assignment
Jason Miller had just returned from a company strategy meeting and began to consider how to strengthen his merchandise assortment. He was a new buyer in the women's apparel area, having been with the company only three months. His product line focused on juniors (ages 13 to 22) and contained an even balance of company- developed private labels and national-brand offerings. Recently, however, an opportunity had been presented to develop an exclusive "co-brand" with an outside designer who was well known in the area of fashion and whose television career had been a huge success throughout the United States during the past several years. This designer was highly recognized by the teen market and offered products with a level of fashion not in the current JCPenney assortment. Jason sat in his office and considered all of the potential risks and benefits to adding this product line. He didn't want to make a huge financial investment in an unproven product line for the midtier department store retailer. However, he believed that this was a "once-in-a-lifetime" opportunity to partner with a highly recognized name in fashion and that this decision could help him gain additional market share. He also believed that success of this co-brand would put him on the fast track within the organization. JCPenney had continued to pursue partnerships with key designers and manufacturers as part of an overall company strategy to differentiate itself from the competition. The "Exclusive to JCPenney" co-brands had been used in a number of different departments spread across the company; they included brands such as American Living by Ralph Lauren's Global Brand Concepts in the men's, women's, and baby areas, along with the recent addition of Cindy Crawford's Style in the home furnishings and accessories area. Other exclusive co-branding partnerships in the apparel lines with Liz Claiborne and Nicole Miller had increased the level of fashion for the company, and Jason believed that this was an important strategy that he should include, at least in part, for his future purchases. While listing the positives and negatives of developing a new exclusive brand in the juniors' area, he noted the following:
Positives
1. The ability to add market share by increasing product visibility and name-brand awareness.
2. Added advertising benefits from television exposure of the co-branding partner.
3. Increase of fashion level for both co-branded items and overall assortment.
4. Continue to stay in line with company directive of utilizing exclusive brands.
5. Point of differentiation from competitors who could not carry the product line.
Negatives
1. High level of risk involved for introduction of new product line.
2. Product development issues concerning design, development, and delivery standards.
3. Contract terms more complex than with private-label or national-branded products.
4. Possible negative effect on sales for other items in product assortment. After listing these positives and negatives, Jason decided to meet with his boss and discuss the idea further. During the meeting, he inquired about the level of commitment that he would have to make in terms of developing this exclusive co-brand. He was informed that there would be at least a three-year commitment required by the designer on this product line if they were to move forward. Upon further discussion, it was learned that the three years was necessary to cover both fixed and variable costs that would be shared or co-opted with the designer. These costs included advertising and promotional signage, capital expenditures on fixtures to support the new brand shop, and overall product development. One key concern for Jason was the three-year commitment for the initial contract. While some of the current exclusive co-branded items were selling well in various areas of the company, not all were performing above initial expectations. Jason noted in his research on previous company exclusive brands that the True Beauty by Emme apparel line, introduced by full-figured fashion model Emme to the JCPenney stores in 2003, was no longer available. He also considered the recent movement of fashion designer Isaac Mizrahi from Target to Liz Claiborne as an example of a potential risk to new product development. "What if we spend all of this time and effort developing a brand, only to have the designer move to a competitor?"
Jason thought. He also wondered what would happen if the product did not meet expected sales or profit performance expectations. How would the juniors' area handle poor-performing items, especially in the current economic environment? Finally, Jason considered how well the new product line would be accepted by his true customers, 13- to 22-yearold girls. Above the normal decisions concerning price and the item-specific decisions about sizes, color, and quantity, Jason had to wonder how popular these items would be in a year or two, given the fickle and trendy nature of teens and young adults today. Would the target customers still consider these exclusive items to be cool in a year or two? Are teenagers willing to shop JCPenney stores exclusively for these designer items? All of these questions and pending uncertainty weighed on Jason as he picked up the phone to schedule a meeting with his boss, the divisional merchandise manager, to make a final decision.
DISCUSSION QUESTIONS
1. What are the key financial considerations in developing exclusive co-brands? How does the current economic environment benefit or hinder this strategy?
2. What effect does an exclusive co-brand have on customer perceptions of the retailer or designer? Does this perception change if the co-brand is discontinued?
3. Describe the basic difference between a private brand, co-brand, and national brand. What are the benefits of each, and how do they affect one another?
4. How is Jason's target market more or less attractive than other markets JCPenney serves?
5. What do you think Jason should do concerning his decision? Defend your answer.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.