【中国经济管理大学MBA讲义】科特勒《营销管理》第13版《Chapter 3 》

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Chapter 3 - Scanning the Marketing Environment and Capturing MarketsI.
Learning Objectives


After reading this chapter, students should:
q
Know some important macroenvironment developments
q
Know the key methods for tracking and identifying opportunities in the macroenvironment
q
Know how companies can more accurately measure and forecast demand

II.
Chapter SummaryMarketers find many opportunities by identifying trends (directions or sequences of events that have some momentum and durability) and megatrends (major social, economic, political, and technological changes that have long-lasting influence).
Within the rapidly changing global picture, marketers must monitor six major environmental forces: natural, demographic, economic, social-cultural, technological, and political-legal.
In the natural environment, marketers need to be aware of the public’s increased concern over the health of the environment. Many marketers are now embracing sustainability and “green” marketing programs that provide better environmental solutions as a result.
In the demographic environment, marketers must be aware of worldwide population growth; changing mixes of age, ethnic composition, and educational level; the rise of nontraditional families; and large geographic shifts in population.
In the economic arena, marketers need to focus on income distribution and levels of savings, debt, and credit availability.
In the social-cultural arena, marketers must understand people’s views of themselves, others, organizations, society, nature, and the universe. They must market products that correspond to society’s core and secondary values, and address the needs of different subcultures within a society.
In the technological arena, marketers should take account of the accelerating pace of technological change, opportunities for innovation, varying R&D budgets, and the increased governmental regulation brought about.
In the political-legal environment, marketers must work within the many laws regulating business practices and with various special-interest groups.
There are two types of demand: market demand and company demand. To estimate current demand, companies attempt to determine total market potential, area market potential, industry sales and market share. To estimate future demand, companies survey buyers’ intentions, solicit their sales force’s input, gather expert opinions, analyze past sales, or engage in market testing. Mathematical models, advanced statistical techniques, and computerized data collection procedures are essential to all types of demand and sales forecasting.
Market fragmentation and market consolidation form market change. Markets evolve through four stages: emergence, growth, maturity, and decline.

III.
Chapter OutlineI.
Analyzing the Macroenvironment
A.
Introduction - successful companies take an outside-inside view of their business
B.
Natural Environment - current deterioration is a major global concern
1.
Shortage of raw materials
2.
Increased energy costs
3.
Anti-pollution pressures
4.
Changing role of governments
C.
Demographic Environment
1.
Worldwide population growth – source of concern for two reasons
a)
Resources are required to support vast growth
b)
Growth is highest in areas that can least afford it
2.
Population-age mix - a strong determinant of needs
3.
Ethnic markets - each population group has specific wants and buying habits
4.
Educational groups - from illiterates to those with professional degrees
5.
Household patterns - traditional household is no longer the dominant model
a)
Geographical shifts in population - migration to safer countries and different types of areas
D.
Economic Environment
5.
Income distribution - four types of industrial structures
a)........ Subsistence economies - few marketing opportunities
b)
Raw-material exporting economies
c)
Industrializing economies - new rich class and growing middle class
d)
Industrial economies - rich markets
6.
Five different income distribution patterns
a)........ Very low incomes
b)........ Mostly low incomes
c)
Very low and very high incomes
d)
Low, medium, high incomes
e)........ Mostly medium incomes
3......... Savings, debt, and credibility
4. ....... Outsourcing and free trade
E.
Social-cultural Environment - society shapes beliefs, values, and norms
1.
People have views of themselves, others, organizations, society, nature, and the universe
2.
High persistence of core values
a) ....... Core beliefs and values passed on from parents to children and
........... reinforced by social institutions
b) ...... Secondary beliefs open to change
3.
Existence of subcultures
4.
Shifts of secondary cultural values over time
F.

Technological Environment
1.
Accelerating pace of technological change
2.
Unlimited opportunities for innovation
3.
Varying R&D budgets
4.
Increased regulation of technological change
G.

Political-Legal Environment
5.
Increase in business legislation
6.
Growth of special-interest groups

II.
Forecasting and Demand Measurement
A.
Which Market to Measure? - potential market, available market, target market (served),
and penetrated market
B.
Demand Measurement
1.
Market demand
2.
Market minimum and potential
a)
Expansible, nonexpansible
b)
Primary demand, selective demand
c)
Market forecast
d)
Market potential
3.
Company demand and sales forecast
a)
Sales forecast - expected level of sales based on plan and environment
b)
Sales quota - sales goals set for product line, specific business entity
c)
Sales budget - conservative sales as a representative estimate of expected sales volume to be used for making current purchasing, production, and cash-flow decisions
d)
Company sales potential (compared to others)
C.
Estimating Current Demand
1.
Total market potential

2.
Area market potential
a)
Market-buildup method (B-to-B markets)
b)
Multiple-factor index method
(consumer markets)
D.
Estimating Future Demand
1.
Three stages of forecasting
a)
Macroeconomic forecast, industry forecast, company sales forecast
b)
Sales forecast based on company assumption of market share
2.
Methods: survey of buyers’ intentions; composite of sales-force opinion; expert opinion; past-sales analysis; market test method

III.
Market Evolution
A.
Like products, markets evolve through four stages: emergence, growth, maturity, and decline
1.
Emergence - in a diffused-preference market, the entrepreneur designs and launches an optimal product for this market
2.
Growth - new firms will enter the market, ushering in a market-growth stage
3.
Maturity - as market growth slows down, the market splits into finer segments, and high market fragmentation occurs
4.
Decline - society’s total need level declines, or a new technology replaces the old

IV.
Summary

IV.
Opening Thought In many cases, the chief marketing executive of the firm can see himself/herself as a player in a chess game. Each move must be carefully chosen to anticipate subsequent moves by the competition and this comes under public scrutiny for acceptance or rejection. Products marketed must meet both consumers’ needs as well as the public’s acceptance.

The instructor’s first challenge for this chapter is to communicate to students the complex and sometimes conflicting forces that impact marketing managers in the 21st Century.

In today’s world of marketing, marketing managers are increasingly being asked to justify their expenditures. As a result, good marketing managers and good students of marketing should be very comfortable with the statistical and financial analyses presented in this chapter.


The last challenge posed is an understanding that markets have a life cycle and undergo changes throughout that process. Again, the use of product or service examples familiar to students is encouraged to communicate the different stages of a market’s life cycle.

V.
Teaching Strategy and Class Organization
PROJECTS
1.
Semester-long marketing plan: competitive information and environmental scanning project(s) completed and presented for instructor’s review

2.
Semester-long marketing plan project: students’ initial marketing research parameters should be completed, demand forecasted, and target market selections defined.



ASSIGNMENTS
Small Group Assignments

1.
Obesity is an increasingly noticeable trend in many fast-developing Asian countries including China, where affluence brings about sedentary lifestyles and over-indulgent diets. In small groups, have the students collect, from the university or college administrators, information about students’ eating (on-campus students would be one group; commuting students another group), exercise, and lifestyle habits. For example, how many students (as a percentage of the total student population) regularly take advantage of the exercise facilities? How many students presently on campus are clinically obese? This is a useful project to demonstrate the skill of data mining and the use of secondary data.

2.
To prepare a case study based on the following materials from Chapter 3 and to present this:
•
Mini case: Meng Niu


Individual Assignments

1.
Select or suggest a current “fad” or “trend” exhibited by students on campus, then research this in light of the marketing opportunities present. Would a firm be successful in capitalizing on this fad/trend? If so, why? Should companies capitalize on this fad/trend—what are the “upsides” and “downsides” for producing products that are currently trendy? What generation do these fads/trends appeal to? How large is the potential market for them? Students should prepare a detailed report on the specific characteristics of these markets. This is a good secondary data and data mining assignment.

2.
Each student belongs to an identifiable ethic and demographic segment of society. As an individual assignment, each student is to describe their subsegment in terms of population, age distribution, growth potential, income, education level, and other demographic characteristics. The conclusion of their report should explain the marketing implications of their findings in terms of potential market, over-saturated market, declining market, or hidden or ignored market with potential.

3.
Use a discussion topic related to the marketing environment. For example, “green” marketing has been a challenge to firms producing environmental-friendly products. The obstacles stated range from overexposure and lack of credibility, to the consumer not willing to pay premium prices for such products, to poor implementation by companies engaged in this practice. Get students to discuss this issue: “When faced with a decision to market its products as ‘environmentally safe’ or along conventional lines (matching competitive positioning), does a company have the responsibility to choose a more socially responsible manner or should the marketplace (i.e. consumer) dictate its marketing strategy?”

Think-Pair-Share

1.
Global forces and macroenvironment factors continually challenge marketers. Select one of the macroenvironmental factors from Table 3.2 and challenge students to prepare a report on how they see this global force affecting, influencing, and limiting marketers in the near future. For example, Point 2 states that “the movement of manufacturing capacity and skills to lower-cost countries” is one of the forces affecting marketing. How will this statement affect multinationals in their marketing plans for the future? Suggested responses might point out that the multinationals must consider the low cost of wages in these countries when pricing their products; that the increase in manufacturing in lower-cost countries may increase their residents’ standard of living, thus opening up markets for new products such as time-saving and labor-saving devices. Let the class discuss how these global forces will affect (positively and negatively) marketing practices in the 21st Century.

2.
The marketing insight, Features of Transforming Market of China, illustrates those features observed
in China’s market which affect and will
affect companies marketing actions in the coming years. Select a particular product or service (medical devices for example as a product; insurance sales as a service) split the class into 10 equal sections and ask each section to comment on how their particular features will affect marketing activities.

END-OF-CHAPTER SUPPORT
MARKETING DEBATE

Is Consumer Behavior More of a Function of a Person’s Age or Generation?

Age differences are fundamentally more important than cohort effects versus Cohort effects can dominate age differences.

VI.Case Study

1.
Innovative Marketing: Hong Kong “Free Travel” Seizes Market Opportunity
1)
Analyze how Hong Kong’s economy recovered in 2004 through the seizing of market opportunity.
2)
Analyze Hong Kong’s marketing strategies and its operation of “Free Travel”.

2.
Chapter Case: Vanke Group Ltd.

1)
As a leader in the real estate industry, what major marketing strategies does Vanke adopt?
2)
How does Vanke identify China’s market demand and seize the market opportunity?

Reference Case: A Measure of Delight: The Pursuit of Quality at AT&T Universal Card Services
HBS Case:
694-047, TN 696-073
Teaching PerspectivesAs part of its overall strategy for “delighting” customers, Universal Card Services (UCS), a wholly-owned financial services subsidiary of AT&T, created a sophisticated quality measurement and compensation system. Through multiple measures of both internal process performance and external customer satisfaction, and by linking employee compensation to overall organizational performance, UCS attempted to achieve a variety of objectives, including rapid identification of process problems, ongoing assessment of customer satisfaction, and motivation of employees to sustain high levels of customer service.

Despite the company’s success, the management continues to struggle to balance the basic tensions that arise from linking compensation to performance measurement. This case illustrates the need to align an organization’s measurement and compensation systems with its overall strategy and marketing strategy. It also encourages students to think about how the costs and benefits of a quality management system should be evaluated.

The case introduces students to the design and implementation of a measurement and compensation system developed by a service company that strives to compete on the basis of low cost and high quality (as reflected by customer satisfaction). It can be used in marketing courses, including those focused on managing services, quality management, and marketing information systems.

Quality concepts have been incorporated into the organization’s design and management from its inception. UCS’s quality system was based on seven core values: customer delight, continuous improvement, sense of urgency, commitment, trust and integrity, mutual respect, and teamwork. Customer service representatives were carefully selected, extensively trained to provide superior customer service, and supported by a computerized information system (U-WIN) tailored to their needs. To empower employees, the company supported an extensive human resources program, including company-wide suggestion, recognition, and reward programs. UCS also provided generous fringe benefits, including an on-site fitness center and extensive support for continuing education.

UCS’s measurement system covered two major areas: external customer satisfaction and internal process performance. To assess how well it served cardholders, it used two kinds of external surveys. The Customer Satisfier Survey asked customers of both UCS and its competitors to compare different companies’ performance along a specified set of dimensions—including price and customer service—that UCS had identified as “key customer satisfiers”. A market research firm conducted the survey, interviewing a random sample of 400 competitors’ customers and 200 Universal Card customers each month. The Customer Satisfier research was supplemented by an internal survey team, which polled about 3,000 randomly selected customers each month who had called or written UCS for a range of reasons during the previous two to three days.

The company also collected and analyzed performance data about a “bucket” of more than 100 internal and supplier processes that management felt had a critical influence on UCS’s overall business performance. Initially, it emphasized processes that directly influenced customers—such as how soon they received their credit cards after applying and whether billing statements were accurate. However, as UCS gained experience, the list expanded to include measures of a number of other service, production, and support processes, many of which were invisible to customers but ultimately contributed to the “service” provided to them.

UCS management set specific performance goals for each process measure and rewarded all employees when those standards were achieved for 96% of the entire bucket of measures on any given day. For managers to earn this quality bonus, it was also necessary that UCS suppliers meet the standards for key supplier-controlled processes. These bonuses could amount to more than $500 per quarter (about 12% of base salary) for associates and up to 20% of managers’ salaries.

The system was designed to use social pressure to drive high levels of collective performance. If everyone’s bonus depended on the whole group’s performance, then no one wanted to be responsible for sinking the boat. Moreover, it was in the economic interest of all employees to help the weaker performers get better. Support services groups, which often escape the discipline imposed on frontline production and service groups, were forced to provide their internal customers—the telephone associates—with the same level of service as others.

Questions:
1.
Discuss the links between measures of internal process performance and customer attitude as measured in customer satisfaction studies.

2.
Assess the strengths and weaknesses of UCS’s quality systems.

3.
Why does UCS place so much emphasis on measurements of internal process performance?

4.
Has UCS created a system that supports continuous improvement or one that simply supports a sustainable level of service?

VII.
Main Topic(s)
Marketing Insight: Features of Transforming Market of China

• How
  should we identify the different features of China’s transformed market in the aspect of environment?

• Analyze the business opportunity and major marketing problems that the features of China’s transformed market have brought in, using an example of a certain industry.

Marketing in China: The Rising Trend of China’s Middle Class

• Analyze the influence that the rapid rise of China’s wealthy class has exerted on the trend of China’s market demand.

• Expound on the effective marketing strategies targeting China’s rich people with examples.

A. “Demographic Data Analysis”Emphasis is on the development of marketing environment information for marketing decision making.
This is based on examples of particular approaches in developing demographic-based market research and leads into a discussion of the implications for the introduction of other research opportunities to the firm and the industry.
Teaching Objectives

• Highlight the role of demographic analysis in marketing decision making.
• Stimulate thinking concerning the critical issues in utilizing demographic analysis.
  
• Consider the steps in proceeding with a demographic analysis.
  

DiscussionIntroduction
For virtually every product or service, demographic data is an important element in the marketing equation. Demographics can help marketers learn more about the current and potential customers, where they live, and how many are likely to buy the product or service based on prior consumption of various products and services. Demographic analysis also helps marketers serve their customers better by enabling them to adjust to customers’ changing needs.
There are four primary steps in the demographic analysis process:
1.
Identify the population or household characteristics that most accurately differentiate potential customers from those not likely to buy.
2.
Find the geographic areas with the highest concentrations of potential customers.
3.
Analyze the purchase behavior of the potential customers to establish some understanding of the cause and effect behind their purchasing patterns.
4.
Determine media preferences in order to find the most efficient way to reach the potential market with an advertising message.
In a mass-marketing approach, there is one message communicated via the media: newspapers, radio, and broadcast television. The assumption is that the message will reach everyone. No special effort is made to ensure that the message will appeal to or reach likely customers.
The result of mass-marketing efforts is that substantial resources are expended on marketing products and services to groups in the population that do not want or need them. For example, a motorcycle company expending advertising budget on prime-time television would also reach housebound elderly as apart from the young adult target market. Likewise, a swimsuit manufacturer placing ads in a national magazine would reach potential consumers in Alaska as well as Florida. The obvious point is that a “shotgun” approach is not the most efficient use of marketing resources.
Target marketing clearly has replaced mass marketing. The guiding principle is “Know Thy Customers”. It is essential to obtain answers to a number of important questions about your target market: How old are they? Where do they live? What are their interests, concerns, and aspirations? The answers to these questions provides the basis to determine the specific advertising media and/or marketing approaches most likely to appeal to those customers and whether you are targeting them. It is also possible that the firm will have more than one group of target markets. Research shows, for example, that young women purchase low-fat frozen dinners for diet purposes, but retirees also purchase the product because they often want a light meal.
The principle also applies in the situation where a firm knows that its customers are predominantly college graduates, and that it also knows the zip codes of existing customers. This information can be utilized as follows:
First, obtain a tabulation of the number of college graduates by zip code, available through various research organizations and information providers such as the American Demographics Directory of Marketing Information or the U.S. Census Bureau.
Second, for any metropolitan area, establish the percentage of all college graduates in the metropolitan area who reside in each zip code. The process is:
Calculate the percentage of existing customers who reside in each zip code.
Divide the percentage of college graduates in each zip code by the percentage of customers in the zip code (and multiply by 100). This provides an index of penetration for each zip code.

If the index of penetration is 100 or above, the market is likely to be adequately served. If it is below 100, there is more potential that can be developed through direct mail to the specific zip codes.
This analysis is conducted using any group of geographic areas that sum to a total market area, such as counties within a state or metropolitan areas within a region. The object is to compare the percentage of customers developed from each submarket area against the percentage actually there. The resulting indexes essentially measure marketing performance and potential, by specific area.
Demographic information is now readily available for various personal computer systems and formats. Demographic statistics are obtained on CD-ROM or via the Internet, complete with software for accessing the data. Other software for highly sophisticated analysis of such data is also readily available.
While it is possible to analyze the data to provide customized market analysis, such as how many pairs of shoes people own and how often they shop for new ones, there are limits to what the basic census data can provide the marketer. Census demographics can provide basic information to help determine the market, the size of the market, and where customers live, but it cannot tell you how many times a week people use dishwashing liquid, consume diet sodas and/or pizza.
Customized Marketing Forecasting, Based On Demographic And Lifestyle Data
With the proper analysis techniques and capabilities, it is possible to merge primary census data with more detailed customer data to form a clearer picture of the market and its potential. This could involve the following:
A detailed lifestyle analysis as well as demographic data.
A determination of whether the product or service will be sold to an individual or a household.
Refrigerators, for example, are household products, and most households have only one or two refrigerators. On the other hand, everyone within the household has his/her own toothbrush and dozens of other personal-care products. To demonstrate the complexity of this question:
There are more than 280 million individuals in the United States and over 100 million households.
Those classified as “family households” include married couples with children (26%), married couples without children (29%), single parents living with their children (9%), and brothers and sisters or other related family members who live together (7%). “Nonfamily households” include people who live alone (24%) and cohabiting couples and other unrelated roommates (5%).
Different types of households are more prevalent among certain age groups. For instance, the majority of women who live alone are over age 65, while the majority of men who live alone are under age 45.
Household types differ between generations as well. Younger people today are much more likely to live in the “other” type of nonfamily household because they may move out of their parents’ homes before marriage and live with friends or lovers.
Everyone in the United States (except for the homeless) lives in either a household or group quarters. Many businesses ignore group-quarter populations, reasoning that nursing-home patients and prison inmates probably do not engage in much shopping. However, if the market is computers, beer, pizza, or any number of products that appeal to young adults or military personnel, marketers cannot afford to overlook these populations. This is especially important when marketing a product in an area where a college or military base is present. People who live in these situations may have different wants and needs than those who live in households. In addition, the area may have a much higher rate of population turnover than other locations.
Once the firm determines whether it wishes to market to households or individuals, the next step is to determine which household segment or market segment would most likely need the product or service. Demographic analysis enables the firm to refine the market definition, the potential market, and how it will likely change over time.
In general, forecasting the U.S. market or that of a specific state is easier than for populations for small areas, such as neighborhoods, which often experience greater fluctuations. In addition, with shorter periods, projections tend to be more accurate because there is less time for dramatic changes to take place. We cannot make assumptions for what a market will look like in 15 years because it is not possible to recognize all the possible changes in the marketplace.

However, the firm can have some confidence in educated guesses about the future if researchers in the firm understand past and present population trends, especially with major trends such as the baby boom and baby bust cycle. Accordingly, it is important to understand the differences between a generation and a cohort. The events for which generations are named occur when their members are too young to remember much about them (e.g. the Depression generation includes people born during the 1930s). Cohort groups provide classifications that are more useful for marketers because they provide an insight into events that occurred during the entire lifetimes of the people in question.
Baby Boomers
To illustrate, consider baby boomers born between 1946 and 1965. In their youth they experienced a growing economy, but they also dealt with competition and crowding in schools and jobs due to the sheer numbers in the cohort. Their lives were shaped by events such as the civil rights movement, the Vietnam War, the women’s movement, and the Watergate scandal. Baby boomers witnessed increasing diversity and technology and are living longer, healthier lives than prior cohorts. However, they also have not witnessed the level of U.S. and global adversity and conflict of prior cohorts, deeply affecting their view of the world and the challenge of survival in a world changing dramatically in the 21st Century.
All these factors combine to make baby boomers a very different cohort than the 32 to 51 year-olds of 20 years ago.
Traditional ideas concerning the preferences of those aged 50 versus 30 are no longer accurate. Beliefs concerning certain consumption patterns, such as “coffee consumption increases with age” and “younger people drink cola”, are no longer as valid as they once were because people who grew up on cola often continue to drink it. The same is true for ethnic foods and a host of other products.
The received wisdom will have to change constantly to reflect new sets of preferences and life experiences. For example, baby boomers remember when the idea of careers for women was considered radical. Not so for Generation X women; most of them work as a matter of course, just like their own mothers. As a result, ideas about marriage, family, and jobs are changing and will continue to change.
If the firm is marketing a product to a certain age range, it should be aware that the people who will be in that age range in five or 10 years will not be the same as the ones who are there now. A strategy that has worked for years should be rethought as one cohort leaves an age range and another takes its place.
Therein lies the challenge in contemporary marketing. It is no longer advisable to treat a market as an undifferentiated mass of people with similar fixed tastes, interests, and needs. In the age of target marketing, it is imperative to know who the customers are and how to reach them. When the customer’s needs change, it is essential that the firm adjust its marketing efforts accordingly. In sum, a working knowledge of demographics and analytical tools for demographics is important for a firm if it wishes to remain as a contender in the market of the next cohort and the next generation.

VIII.
Background Article(s)Issue:
Brand Paring in a Changing EconomySource: “Sears to Cut More Brands,” DNR, October 29, 2001, p. 3.

Sears Roebuck & Co. will reduce the number of career merchandise lines, focus on better casual lines, and also has plans to remodel 580 of its largest full-line stores. Plans also include
introduction of a private-label “megabrand
” and to put more focus on classifications.
Acknowledging that the apparel strategy it has pursued for much of the last decade has had “a very poor financial outcome”, Sears’ Chief Executive Alan J. Lacy announced an array of new apparel initiatives as part of a larger, three-year restructuring. The plan includes laying off about 4,900 salaried employees—or 22% of the total salaried work force—and reconfiguring both the selling floor and the store’s legendarily complicated chain of command.
The apparel initiatives include significantly cutting back on career merchandise and refocusing the assortment on better casual lines. In addition, the store, while continuing to split the apparel assortment more or less equally between national brands and private labels, will significantly decrease the number of brands it carries.
The store also plans to introduce a private-label megabrand across men’s, women’s
, and children’s apparel that will replace most of Sears’ casual private-label brands and focus more on classifications than on collections. “We’ve tried to be a moderately-priced department store,” said Lacy. “We don’t want to be that anymore.” What Sears wants to be, however, is less clear. “We’re not a discounter and we’re not a department store,” said the Chairman. To clarify, the division head of the 860 full-line stores commented that: “We want to be Sears.” She also noted that the store is looking long and hard at Kohl’s as a model for its soft-lines business.
Lacy also acknowledged that the company considered dumping its $9 billion soft-lines business entirely last spring and becoming a hard-lines-only store, but decided the business—while a chronic drag on the bottom line—has the potential to become a meaningful player in the apparel world.
Lacy said the changes were necessary due to shifts in the market over the last few years, adding that “the discounters have gotten better and the department stores have gotten more promotional. We need to address these changes.”
Specifically, he said Sears’ margins and expenses are “out of whack”, meaning that the store has to compete with discounters and other low-margin, big-box specialty merchants on price at the same time that its overhead, such as the rents it pays as a mall-based retailer, is more reflective of department stores. The plan for correcting this situation includes beefing up opening price points in hard lines while raising many price points in apparel.
On the selling floor, Sears plans to remodel 580 of its largest full-line stores over the next five years and reduce the number of fixtures it currently uses from 132 to 11. The store will also offer centralized checkouts in many stores while continuing to have cashiers in certain departments.
Sears currently has 860 full-line stores around the country and total annual sales of more than $25 billion. According to Lacy, about 250 of those are smaller locations of 65,000 square feet or less. In the future, these small stores will focus primarily on hard lines and some may also be closed.
In terms of the chain of command, the store is flattening hierarchies in some areas and simplifying and combining management levels at the stores. Currently, a typical store manager has 11 people reporting directly to him or her. In the future, that number will be five. What this means is fewer salaried employees overall and greater reliance on hourly workers, a setup more typical of discount stores than department stores.
Lacy said the changes will result in savings of $600 million and a 50% improvement in earnings to $1 billion by 2004.