Professor: Lonnie Ostrom April 30, 2013

Lizbeth Arteaga Taylor Godfrey Jordan Luers Bianca Martos Brian Salerno

Table of Contents
EXECUTIVE SUMMARY INTRODUCTION GAPS SWOT ANALYSIS MARKETING ENVIRONMENTS DEMOGRAPHIC ENVIRONMENT ECONOMIC ENVIRONMENT NATURAL ENVIRONMENT TECHNOLOGICAL ENVIRONMENT POLITICAL & LEGAL ENVIRONMENT SOCIAL & CULTURAL ENVIRONMENT SUGGESTIONS CONSUMER MARKETS, COMPETITION, SEGMENTATION, AND POSITIONING MARKETS COMPETITORS AND COMPETITIVE RIVALRY CUSTOMERS SUGGESTIONS PRODUCT & PRICE STRATEGIES AVAILABLE PRODUCTS DIAGNOSTIC PRODUCT PROFILE NEW PRODUCT DEVELOPMENT CHANNELS OF DISTRIBUTION (RETAILERS AND WHOLESALERS) SUGGESTIONS PROMOTION STRATEGIES & PRICING STRATEGIES MARKETING COMMUNICATIONS MIX DIAGNOSTIC ADVERTISING PROFILE DIAGNOSTIC SALES PROMOTION PROFILE PUBLIC RELATIONS, DIRECT MARKETING AND INTERNET PROMOTIONS CURRENT PRICING SUGGESTIONS OVERALL RECOMMENDATIONS DEMOGRAPHIC FOCUS: TEENAGERS ADVERTISING ENHANCEMENTS DIGITAL STRATEGIES BIBLIOGRAPHY EXHIBITS 3 4 7 9 9 11 12 14 16 18 20 20 20 23 30 33 33 33 40 46 50 55 55 55 57 65 66 70 75 76 76 77 78 80 94

EXECUTIVE SUMMARY
On January 15, 2013, Team Gap began researching all aspects of the American multinational clothing and accessories retailer brand: the Gap. To perform this research, we familiarized ourselves with the brand, its operations, and customers. Then, we each conducted a portion of the overall research by identifying and understanding different aspects of the brand. This paper expands on our research findings of the history of the Gap, how the brand has expanded, where it is today, and its plans for the future. Gap Inc. consists of several clothing brands including Old Navy, Banana Republic, Gap, Piperlime, Athleta, and Intermix. The Gap brand is a specialty retailer that offers clothing and accessories for people of all ages, sizes, and gender, and has grown to include the product lines: babyGap, GapKids, GapMaternity, GapBody, and GapFit. The brand has maintained a clean and family-friendly image specializing in basic clothing items like khaki's, jeans, and T-shirts. The Gaps strategy for identifying its target market uses all the segmentation schemes including geographic, demographic, psychographic, and behavioral segmentation. The Gap has worked to create a more sustainable corporation and brand image. They are a company concerned with human rights, climate/environmental changes, and philanthropy. Gap products are available globally in franchises, specialty, outlets, and online stores. Along with the entire retail industry, Gap has had to adapt to the rapidly changing technological environment as well. The Gap website underwent extensive renovations to keep up with its competitors websites, demand of customers, and expanding corporation. The Gap has struggled to stay committed to a specific target market, and it is because of this that Gaps customers may be easily persuaded to switch to one of the brands competitors such as Abercrombie & Fitch, American Eagle, H& M, or TJX. Each of these brands caters to

similar target markets and carry comparable products. The Gap brand utilizes all five of the promotional tools including advertising, sales promotion, public relations, personal selling, and direct marketing. However, Gaps seldom and ineffective advertising holds very little brand recognition amongst consumers compared to its rivals. The Gap brand uses several pricing objectives and strategies including price discrimination, bundling, and psychological pricing. On the basis of this research and our findings, we recommend that the Gap make its advertising and products more memorable and distinctive due to the extreme competition in the apparel industry. This will help to attract more customers and grow customer loyalty. To achieve this we suggest creating an emblem for its clothing, especially, the products geared towards the teenage and millennial market. Lastly, we recommend that Gap continue in their efforts to be a more socially and environmentally sustainable company. However, they should make their efforts more known to their consumers by creating philanthropic products. This will not only help the cause being promoted, but also stimulate brand recognition, customer loyalty, and contribute to the brands overall personality and image.

INTRODUCTION
Don Fisher and his wife, Doris Fisher, opened the first Gap store August 21, 1969 in San Francisco, California. Don Fisher decided to open up the Gap when he was unable to find the right size of Levis jeans. As the Gaps reputation grew, so did their number of stores. Originally focusing on small stores in shopping centers, they quickly expanded across the U.S., and today are a successful international company. Analysts credit the companys success to the Fishers observance of a few cardinal rules of retailing: Gap stores replaced stock with maximum speed; prices were low and stayed that way; big sellers were kept on the rackand only a few types of items were stocked (The Gap, Inc. Business Insight). Initially, Levi Strauss jeans provided all 4

of Gaps merchandise, but in 1973, Gap created labels of its own. They developed the Gap brand for a line of jeans and clothes that included informal, but classic shirts, skirts, blouses, and sweaters (The Gap, Inc. Business Insight). This remains a key component to the long-term success of the Gap brand. Today, the Gap is known as a specialty retailer that offers clothing, accessories, and personal care products for people of all ages, sizes, and gender. The brand has maintained a casual image concentrating in basic clothing items such as jeans, khaki's, and Tshirts. While the Gap brand predominately focuses on the 18-35 year old age bracket, they have developed other product lines to reach a broader target market including GapKids, babyGap, GapMaternity, GapFit, and GapBody. In 1997, Gap Inc.s website made its first debut, offering e-commerce to its customers, and helping the company to expand globally. The company now has over 3,300 stores worldwide, and continues to grow ("Key). Gap Inc. also developed other brands to appeal to a larger consumer base including Banana Republic, Old Navy, Athleta, Piperlime, and Intermix. Old Navy offers a more cost conscious product, whereas, the Gap and Banana Republic cater to more expensive, specialty items. Piperlime, was strictly an online clothing store up until recently, and Athleta is a clothing store focused on athletic apparel ("Key). Gap Inc.s newest edition, Intermix, is a multi-brand retailer of luxury and contemporary womens apparel and accessories. Over the years, Gap Inc. has worked to create a more sustainable corporation and image, and was ranked No. 13 overall and No. 4 in employee relations on the publication's 100 Best Corporate Citizens 2012" (Nichols). Currently, Gap Inc. is one of the leading specialty retailers. The companys mission statement declares, Gap, Inc. is a brand-builder. We create emotional connections with customers around the world through inspiring product design, unique store experiences, and compelling marketing (The Gap Store). Gap Inc.s purpose statement stresses, simply, to

make it easier for you to express your personal style throughout your life. We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers (The Gap Stores). Gap Inc. focuses on creativity, delivering results, doing what is right and always thinking of their customers first (Our). The company focuses on their social and environmental responsibility as well as investing in the community. According to Gap Inc.s 2011 Annual Report, there was an earnings decline for the first time since 2006. However, its online revenue exceeded $1.5 billion in 2011 and their franchised businesses are growing at a fast rate, with a 45 percent increase in net sales year-over-year (2011). Despite this increase in revenue, Gap Inc. from 2000 to 2011 did not do well financially. According to Gap Inc.s most recent fourth quarter results they are growing financially. The companys sales for January 2013 were up eight percent compared to the four percent decrease for January 2012. The companys comparable sales for the fourth quarter of fiscal year 2012 were up five percent compared with a four percent decrease in the fourth quarter last year. The fiscal year 2012 net sales were 15.7 billion (Gap Inc. Reports). Gap Inc.s stock began to grow and peaked above $37, but has decreased ever since. Overall, the companys stock has been improving over the last five years. Currently, Gap Inc. stock is at $33.73, while there is a positive 0.81 (2.46 percent) change (Stock). Below is a graph of the Gap Inc.s stock from 2008-2013 (The Gap, Inc. Common).

Figure 1. Gap Stock from 2008-2013

Gaps SWOT Analysis The Gap brands greatest strength resides in its image. The Gap brand reaches a wide range of customers through each of its product lines. Gap has an extensive geographic presence that has helped it maintain a strong position in the retail market. Currently, Gap has stores in the United States, Canada, United Kingdom, France, Ireland, Japan, China, and Italy. It also has many franchises throughout Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa. With both a growing geographic and Internet presence, the Gap has reached 90 countries. However, Gaps main weakness is that it has a high dependence on outside vendors. They purchase from over 1,000 vendors in 43 countries. Approximately, 98 percent of all of Gap Inc.s merchandise sold in 2011 was produced outside of the United States (2011). Product cost increase or natural disasters could directly affect Gaps manufacturing operations. Relying on multiple third party suppliers may become an extreme risk. Gap has numerous opportunities with a growing global market. Global apparel retail is expected to reach almost $1.3 trillion in 2014 (Clothing). With the companys recent expansion into foreign markets, like China, and its thriving e-commerce, Gap will be able to tap into these new markets and continue to grow. According to Toby Lenk, President of Gap Inc. 7

Direct, Gap has a powerful global e-commerce platform and five incredible brands to drive global online growth (2011). Unfortunately, the Gap faces threats due to the highly competitive retail industry. Gap has to compete with local, national, and global department stores, specialty and discount store chains, independent retail stores, and online businesses (2011). Continued foreign expansion will increase the number of competitors and create possible obstacles for manufacturing and selling in foreign markets. Below is Figure 2, which represents the Gaps strengths, weaknesses, opportunities, and threats (SWOT). Strengths Geographically Dispersed Strong Brand Recognition/image Targeting Multiple Markets All American/Wholesome Image Strong ecommerce/Website Clothing allows for Flexibility P.A.C.E. Program Gap Outlet Customer Service Opportunity Growing Apparel Market Foreign Expansion Expansion in e-commerce Business Casual Eco Friendly Supply Chain Management Pre-teens & Teens (12-18) Market Weaknesses Broad Target Market Products too Bland Product Line Mesh No labels to Create Belonging Wholesome Image and Pre-teens Dependence on Too Many Vendors Compete with Own Brands Lack of Advertisement Threats Legal/Political Problems Competitive Market Problems with Sweatshops Natural disasters/Power Shortages Pricing Pressure from competition Substitutes for Product/Brand Limited resources Changing Trends

Figure 2. Gap SWOT Analysis Chart

MARKETING ENVIRONMENTS

Demographic Environment

Among the Gap Inc. brands, the Gap brand maintains the broadest customer base. The majority of Gap sales are from adults between 18 and 34, however, the consumer ranges from babies to baby boomers (babyGap, GapKids, GapBody, plus male and female divisions) (Mandelbaum, McKibben, and Springstubb 7). The Gap consumer varies from lower-middle to upper-middle income and each demands a different product. Due to this broadness, it is hard to define Gaps consumer target since they focus on several segments. Demographic trends posing both opportunities and threats for the Gap brand include the growth of ethnic markets both globally and locally, a change in target population age, and an increase in obesity within the United States. The Gap North America has been in decline over the past few years due to the struggle to identify a target consumer and the economic downturn. In 2011, it was announced that the number of Gap brand stores in North America will be reduced to 700 by the end of 2013, while it continues to expand globally in Japan, China, Europe, and Canada (2011). By the end of 2014, Gap expects to have 400 stores in China, resulting from Chinas economic and middle class growth ("Gap Struggles"). This growth in ethnic markets abroad poses an opportunity for Gap to sustain profit and expand elsewhere, while they are not doing as well in North America. However, this opportunity is also considered a threat as Gap now faces both local and global retailer competition, some of which are the same in both circumstances such as Abercrombie & Fitch, Ann Taylor, and American Eagle (Mandelbaum, McKibben, and Springstubb 7). Another ethnic trend includes the growing Hispanic population of the United States, now accounting for 9

16.7 percent of the nations total population ("Facts for Features"). Although Gap has yet to tap directly into this market, it would allow the Gap brand to expand their consumer base in a growing population and increase profitability. The threats of marketing towards the Hispanic population are that many other companies have recognized this large market and are catering or developing products geared towards them. In turn, this creates more competition in the retail industry. The Gap brand has always struggled to find a target consumer age. Recently, they have focused on attracting both teenagers and millennials (20 30 years of age). According to the 2011 Census, there are more than 60 million 18-35 year olds in the U.S., making roughly 20 percent of the population (Lutz, Gaps Fall). To tap into this age demographic, in the fall of 2011, the Gap launched its first campaign geared towards millennials, and have catered its product to reflect their tastes. The positive aspects of marketing towards this age demographic are that they account for almost a quarter of the population, and utilize all facets of social media, making the age bracket easier to market towards. Also, if they chose to continue with this age segment, their consumer base would become less broad, allowing themselves to concentrate the brand to the needs of that targeted consumer. One negative aspect of marketing to this age demographic is that you negate all older age brackets, which have grown up with the Gap brand. Also, young adults do not possess as much disposable income as the older generation such as the baby boomers. The baby boomers of the 1960s now in their 50s are the consumers that have grown up with the Gap brand, however, the Gap product no longer caters to their needs, and up until recently, has not offered larger sizes such as XL and XXL. Obesity is a growing demographic trend of both the younger and, especially, older generations. More than 68.8 percent of adults in

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the United States are either overweight or obese, doubling the percentage of what it was during the 1960s (Chou, and Kane). The positive aspect of the Gap brand tapping into this neglected market is an increase in consumerism within the U.S. and abroad. The negative aspect of implementing larger sizes into Gap stores is that it may contradict Gaps image or pursuit of health. Gap Inc. promotes health through both its brands GapBody, GapFit, and Athleta. Economic Environment Economically, Gap made huge strides in 2012, and was voted Yahoos company of the year (Nichols). Gaps stock price rose to 71 percent, putting them in the top 4 percent of growth on the S&P 500 (Nichols). However, for the previous four years, Gap has been scrutinized for plummeting sales and exponential drops in stock prices. To insure they maintain stock value, Gap is buying back one billion dollars worth of stock and has increased dividends by a little more than 10 percent (Nichols). In the early 2000s, many investors thought Gap Inc. would go out of business due to its lack of innovation. Anne Kingston of the National Post stated, "The Gap has lost its groove. Its merchandising is unfocused and it has lost ground to competitors. The formula that made it great no longer has the same currency" ("The Gap Inc. History"). Realizing this, Gap has been focused on finding their target audience. The first time since 2004, Gap store sales have increased. Compared to its strongest rivals, American Eagle, Abercrombie & Fitch, and Aeropostale it ranks competitively in potential earnings and net margin of profit (Nicholas). Gap Inc.s comeback is mostly attributed to the company focusing on value-driven products and cutting down unnecessary expenses (Edalbaum). As previously stated, the Gap brand has grown substantially both internationally and online. The 2011 annual report stated "through our online strategy of shipping product to 90 11

countries in all our online revenue exceeded 1.5 billion" (Edalbaum). Also, through market research, the company was able to strategically operate particular brands in specific channels and geographies, recognizing improvements in total sales and revenues. Natural Environment Gap Inc. prides itself in being a green company. The company has concentrated on conserving both energy and resources, creating sustainable designs, and reducing waste and chemicals harmful to the environment. However, in 2011, the cost of raw materials rose quicker than the company expected and faster than they were able to increase their prices. This resulted in nearly a 20 percent decrease in the apparel chains profit (Lutz, Gap Profits). Despite this fallback, the company has helped improve the environmental practices of their raw material suppliers. According to Gap Inc.s official website, the company partnered with the Natural Resource Defense Council in 2009 to help develop more efficient environmental management systems in fabric mills. This act aided in the reduction of energy, water, and chemical use (Mill). In 2010, Gap partnered with Cotton Inc., encouraging their customers to donate their used jeans so that they may be recycled and made into insulation for houses in underprivileged communities. Accruing more than 300,000 jeans over the course of its campaign, Recycle Your Blues created enough fiber insulation from the old jeans for approximately 500 houses ("Gaps Recycle"). Gap Inc. is also conscious of their pollution output and carbon footprint. For the past nine years, Gap has collaborated with the U.S. Environmental Protection Agencys Climate Leaders Program and the Carbon Disclosure Project to help reduce their energy use and toxic greenhouse gas emissions. At their West Coast distribution center in 2008, Gap implemented a solar panel system which expected to offset 2.5 million pounds of greenhouse gas emissions annually, the 12

equivalent of taking 2,466 vehicles off the road over the life of the project (Gap Inc. Unveils). In 2009, Gap was able to report a 20 percent decrease per square foot in their use of greenhouse gas emissions ("Energy"). As part of the textile industry, Gap is cautious of its fabrics, especially cotton. Conventional cotton uses 10 percent of all agricultural chemicals and 25 percent of the worlds insecticides in the U.S., one-third of a pound of chemicals is needed just to grow enough conventional cotton for a regular T-shirt (Everman). It takes a large amount of water, energy, and insecticides to manufacture cotton. Insecticides harm people, animals, and the environment by contaminating water and soil (Problems). However, Gap Inc. brands have invested in sustainable product design and over the years have offered a variety of items made from organic cotton and other sustainable fibers (FAQ). Gap strives to be energy efficient. According to the official Gap website, Gap uses their Energy Management Program to help specific company stores develop ways to reduce energy use. Throughout the companys distribution centers, they have installed energy-efficient fluorescent lights which have decreased their electricity use by roughly 40 percent ("Energy). Gap Inc. encourages their employees to recycle materials used during their day-today jobs, which has resulted in the elimination of 100,000 pounds of landfill each year ("A Greener"). Gap Inc. has attempted to reduce their packaging waste. A review of their packaging use, allowed the company to edit areas of excess that affected not only their costs, but the environment. In response, Gap eliminated the plastic packaging from their online babyGap sleepwear line, which significantly reduced costs and promoted sustainability. Gap, also, redesigned their shipping cartons which resulted in the elimination of approximately 12 million

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cartons and the reduction of about 57,000 metric tons of waste every year ("Improving"). Other ways Gap Inc. has reduced their waste include developing gift cards made of recycled materials, decreasing their cardboard box use, and have recently launched a campaign that helps employees learn waste-reducing behaviors. Technological Environment The retail industry has had to adapt to the changing technological environment and because of this are able to offer more flexibility to their customers. Through e-commerce, consumers are able to quickly and easily shop wherever they are, thanks to innovation across the industry. According to the article Black Friday Billion, holiday season-to-date, $13.7 billion has been spent online, marking a 16-percent increase versus the corresponding days last year. Black Friday (November 23) saw $1.042 billion in online sales, making it the heaviest online spending day to date in 2012 and representing a 26 percent increase versus Black Friday 2011 (Black). With the convenience of shopping online, consumers no longer need to physically go to stores. Innovative technological advancements in the industry have aided companies in improving multiple facets of the business such as inventory management, supply chain process, checkout process, and customer service. Bar-coding and computerized billing systems are two examples of basic technological improvements that retail industries have utilized to increase efficiency. Gap Inc. has recognized the benefits of social media and how it can be used to connect with their customers. In 2005, the Gap website underwent extensive renovations to meet the efficiency demands of its customers (The Gap Inc. Business Insight). The website changes simplified the shopping process, which solved the too many clicks problem, and accommodated the needs and wants of their customers (Tedeschi). Other changes included the 14

ability to purchase from all Gap Inc. brands via one shopping cart, check out process, and shipping fee (Internet). For three years, Gap began offering maternity clothes exclusively online, and in 2006 they added a new brand, Piperlime. This brand was online only for six years until last fall when they opened a store in New York (The Gap Inc. Business Insight). Furthermore, Gap has tailored its website to its customers interests using Customer Relationship Management (CRM). Through CRM they are able to understand customers interests and needs by analyzing their purchases individually. In 2011, Gap launched a new campaign geared towards the millennial market. Through the use of smartphones, blogs, and social websites, Gap allowed customers to watch videos on the design and manufacturing process of their garments (Lutz, Gaps Fall). There is a Gap application for mobile devices as well. This app allows customers to scan items through their mobile devices while shopping; making for an easier and more efficient shopping experience. Gap works with Visa to provide updates to their customers about promotions and discounts through a text message service called short messaging service (SMS). When customers make a transaction, their location is identified and if they are within X miles of a Gap they receive an offer on their phone using SMS messaging (Visa). This is the best way to reach their customers in real time and attract them to a nearby Gap store. To get SMS messaging, customers must simply sign up online, and will receive updates when they make transactions with their Visa card (Hamblen). With the technological advancements, retailers have more competition now that most businesses are online and unbound to location limitations. However, to maintain a competitive edge the Gap must continue to be technologically savvy, especially, amongst its competitors. For example, J.C. Penny is working to create a register free future by 2014 and is looking to cut out

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the use of cash at Penneys locations (Ortiz). This will be possible through radio frequency identification (RFID). Some of North Americas largest retailers have pilot projects using RFID to track inventory and item sales (An RFID). In 2001, Gap used RFID to track their denim jeans and later announced that a one-store, one-category RFID trail increased sales by 15 percent (Flanagan). Political & Legal Environment Gap Inc. does business in 90 countries with 134,000 employees, and because of this there are various legal problems that could affect the marketing strategies or tactics of the Gap brand. Currently, the Gap brand has no threats of going bankrupt. According to Macroaxis Incorporate, Gap Inc. has less than 2.0 percent chance of experiencing financial distress in the next 2 years of operations (Gap Inc: Probability). With minimal company financial problems, Gap Inc. mainly deals with other issues both domestically and abroad. The Federal Trade Commission (FTC) is an agency that oversees and regulates advertising and marketing law in the United States (Advertising). The laws regulated by the FTC influence Gap heavily. The FTC regulates all email campaigns, ways of marketing towards children, environmental claims, and product labeling. In 2010, the FTC sent warning letters to 78 retailers, including the Gap, to stop labeling products of the bamboo textile when it is actually made of rayon. Failing to properly label and advertise textiles misleads consumers and runs afoul of both the Textile Rules and the FTC Act (FTC). In addition, many workers picket clothing lines which impact production quotas because they want wages, more safety, or medical benefits that are available to other comparable companies in the industries (Suttle). In 2002, the Gap brand faced domestic legal issues with the California Labor Commission. The issue arose from requiring employees to wear their company's brand of clothing while at work, which directly violated provisions of the 16

California Labor Code and the state's Industrial Welfare Commission wage orders" (Strasburg). Being that Gap is an international brand many foreign policies and agencies have a large impact on how business is to be conducted. Gap Inc. must monitor the labor and employment laws for every country it is located, including the United States. Last December, Gap Inc. faced problems with fire safety and the use of sweatshops in their garment factories in Bangladesh, Asia. The lack of fire safety left 400 employees dead in two recent fires. The Clean Clothes Campaign, part of the Organic Consumers Association, maintains an anti-sweatshop outlook by working with the issues directly in order to improve working conditions around the world. Since Gap Inc. purchases products from these factories, they are loaning $20 million to help improve fire safety with a new campaign for its suppliers, as well as, giving $2 million in grants to help pay workers during the renovation process (Fire). This helped restore the Gap brand image considering that in 2007, Gap was part of a settlement from a lawsuit brought against 22 companies for using sweatshop labor in Saipan, a US territory in the South Pacific (Responsible). The Indian authorities found children, as young as ten, working in factories in New Delhi, and three deaths on site because workers were unable to leave when they were sick (Responsible). The Worker Rights Consortium investigated Indian garment manufacturers in Bangalore in 2010, to discover that about one-third (or 125,000) of garment distinct employees were underpaid (Preliminary). In March 2009, the Clothing Manufacturers Association of India (CMAI) refused to comply with the increase of wages. Much management openly admitted that it is not paying the current minimum wage, reporting that this is common practice in the industry in Bangalore (Preliminary). The Clothes for a Change campaign is a global campaign to raise awareness about the negative health and environmental effects of conventional and genetically engineered

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cotton, and the institutional exploitation of clothing sweatshops (About). To help further Gap Inc.s social responsibility they should continue to collaborate with the Clothes for a Change campaign and the Organic Consumer Association. The Gap brand is working towards a better social/environmental image through their own P.A.C.E. program (Personal Achievement and Career Enhancement) to Advance Women to Advance the World. Currently more than 14,000 female garment workers have participated in the P.A.C.E. program and have helped women obtain life skills that allow them to advance in the workplace at an accelerated rate and be a positive role model in their society (P.A.C.E.). Bring awareness to these new promotions will improve the brands social image and insure that the company take responsibility for their employees. Social & Cultural Environment Sociocultural forces are changes in the characteristics of the population demographics such as age, gender, race, ethnicity, marital and parental status, income and education. These shifts lead to changes in how people live and ultimately in their consumption of products such as clothing (Pride and Ferrell 69). There are an increasing number of consumers over the age of 65 and expected to rise to more then 150 million (Pride and Ferrell 69). These consumers have grown up with the Gap brand and could be regular consumers of the product, if Gap decided to market towards this segment. Furthermore, an aging population may increase the demand for larger jeans and pant sizes, such as relaxed or looser-fitting styles (Suttle). Another category of changing demographics would be the increasing numbers of Hispanics in the United States as previously mentioned above. The Hispanic community holds the annual purchasing power of about $1.2 trillion a year (Pride and Ferrell 70). To gain market share in this growing demographic, Gap should consider a line directed towards the Hispanic community. Knowing 18

how to adapt and develop with these social and cultural changes can equip the company in recognizing the publics needs and wants. Business values have changed and marketers are aiming more marketing efforts directly at children because children often play pivotal roles in purchasing decisions, which was not as widely accepted in the past (Pride and Ferrell 71). The United States is entering another baby boom, with more than 84 million Americans ages 19 or younger, representing 27.1% of the nations population (Pride and Ferrell 69). The Gap has its own lines dedicated towards this younger age segment such as babyGap and GapKids. The brand babyGap originated in 1990, accruing roughly $1.9 billion in sales and will continue to increase with this repeat of the baby boom (Baby). In 2010, the textile and clothing industry reached $2.56 trillion and children clothing predicted to have a 15% increase in the next five years to reach $186 billion by 2014 (Breyer). Business and family lifestyles have altered as well. Professional attire has become more casual, allowing for the Gap brand to cater to a larger audience. As for family dynamics, women are no longer solely focused on the home, but are increasingly seen in the workplace. Business sustainability is a growing trend in our culture. The Gap has made an effort to reach out to its more eco-friendly consumers by offering a new babyGap line made of 100 percent organic cotton. Also, Gap Inc. is working towards having a more socially responsible company by the use of the P.A.C.E program and working with Clothes for a Change and the Clean Clothes campaign. Other strategies used by the Gap to be more eco-friendly include recycling jeans to make insulation, the use of solar power energy in their distribution centers, and their efforts to reduce pollution and waste within the company. Lastly, the recession has played a vital role in the lifestyle changes of the consumers and businesses. The consumer shopping habits have changed to be more conscious of quality,

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price, and accessibility of a product. Even as UK consumers have become more priceconscious, the importance of the clothing durability has increased, with the majority of the UK consumers expecting to wear their clothing longer than in the past years (Global). Even though this is concern, an estimated $45.7 billion worth of unworn clothes sit in the closets of the UK consumers (Breyer). With this being said, there is still a desire for consumers to spend on items they do not necessarily need. Suggestions Continue to pursue a younger demographic Increase social media in order to reach out to the teenage/millennials demographic Persist to be both socially and environmentally responsible

CONSUMER MARKETS, COMPETITION, SEGMENTATION, AND POSITIONING

Markets Due to the recession, many industries have suffered, especially that of apparel and textile. However, recently the economy has been growing, leaving retail industries optimistic. After the unpredictable changes in cotton prices, the fabric sector is now estimating a 12 percent growth (Textile). As previously mentioned, in 2014, the global apparel retail market is expecting to reach approximately $1.3 trillion, representing more than 13 percent expansion in five years, with the Americas representing nearly 36 percent of the market (Clothing). Currently, the United States brings in an annual revenue of $150 billion just from retail clothing stores, which results in an annual average revenue of $1.5 million per store (Wallace). Gap Inc. has been doing 20

well itself, accruing an eight percent increase in comparable sales in January, and all of its brands showing improvement (Stutland). The apparel and textile industries are growing globally and improving their sales as the economy grows and the attractiveness of convenience from buying online increases. The article entitled Apparel Drives U.S. Retail Ecommerce Sales Growth states, online sales of apparel and accessories are now growing faster than any other ecommerce product segment and eMarketer estimates online sales of U.S. apparel and accessories [] will grow 20 percent to $40.9 billion in 2012, up from $34.16 billion in 2011. Today, Gap Inc. has total revenues of $14,549 million, profits of $833 million, and as of March 29, 2012, Gap Inc. held $12,729 million in market value with 3,085 store locations (Fortune). Identifying a target market and brand is crucial to the success of any company. The Gaps strategy for identifying its target market utilizes all segmentation schemes including geographic, demographic, psychographic, and behavioral segmentation. Geographically, Gap determines specific details of where its potential customers live. Demographically, Gap identifies the characteristics of its targeted customer, such as age, education level, income, marital status, and occupation. The Gap uses the psychographic characteristics including values, morals, and interests to analyze its customers. Lastly, behavioral segmentation allows the Gap to identify specific behaviors of its targeted consumers, ultimately, seeking the answer as to why customers would purchase its products in relation to what their goals in life are. The brand targets men, women, and children all from infancy to late 40s. It aims to draw athletes/fitness people, college students, parents, teenagers, toddlers, and newborns via specific marketing techniques. However, the majority of Gaps marketing and advertising efforts are geared towards the ages of 25-40 (Cheng). In regards to price, Gap stands as a middle ground between Banana Republic and Old Navy. Being the most expensive brand, Banana Republic offers high end, fashionable clothing at

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a price point of $20 and up. The Gap offers stylish, classic essentials at a medium price point of $15 and up, and Old Navy provides fun, casual attire for a low price point of $5 and up. Characteristics of Gaps targeted market segment include those living in urban areas, those looking for business or casual clothes, and individuals, families, or young couples with middle to upper class income. Gaps customer base varies widely including those that are more workoriented, active, family-oriented, and/or conscious of their personal style. On March 21, 2011, Gap Inc. aimed at increasing its sales by re-positioning its marketing strategy and targeting younger and ethnically diverse consumers, meaning specifically African-Americans, Latinos, and Asians (The Gap Looking). However, according to the article entitled, Gap Struggles to Find the Right Customer, Adrienne Tennant, a retail analyst with Janney Capital Markets, states, Gap has been struggling for a decade to find the right target customer. [] They over expanded their stores and tried to reach too many different customers. Tennant explains that today, even though Gaps target market is fixed, the brand struggles to keep a customer base due to the fact that it has switched focus several times. Gaps customers have become confused and as a result, have made it difficult for the brand to keep track of its customer demand (Gap Struggles). While Gaps marketing plan to target more ethnically diverse consumers in early 2011 was a strong strategic move, in late 2011 Gaps target market shifted. Instead, the Gap began a campaign targeting millennials, young adults ages 20-30. Seth Farbman, Gaps chief marketing officer, emphasized, our core customer has changed to the millennials who are entering the market in a very big way, so we are making some bold and deliberate changes (Lutz, Gap Making). Although there is some opposition to this decision, Gap should focus on one market segment, instead of striving to attract them all. This will help drive a targeted market and diminish any confusion for customers.

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The Gap brand appeals to many consumers through its use of fun, colorful, and sometimes inspirational advertisements. This image is recreated and replicated in all Gap stores. Gap Inc. utilizes the differentiation strategy to attract many customers and to sell to sophisticated customers who want to purchase moderately priced, high-fashion casual clothing (Business). Although Gap should require a more focused product mix to reverse its fortunes because some may see a problem with Gap trying to appeal to such a large and varied age group (Business). This same differentiated strategy is also used by Gaps biggest competitors including Ross, TJX, American Eagle Outfitters, Abercrombie & Fitch, Guess, and J. Crew (Gap Inc. GPS, Morning Star). In all, it would be in the Gaps best interest to focus on just one market segment, in order, to gain prestige and market share for that particular segment. Competitors and Competitive Rivalry The Gap is part of the specialty industry and is an American middle-class brand. The top American "market leaders include Gap, Ross, TJX, Abercrombie & Fitch and Limited Brands," along with other big competitors such as JCPenney and Sears (Clothing). For the global apparel industry, the key players include Zara, H&M, C&A, Topshop, and Uniqlos Fast Retailing. Gap and TJX are the two major U.S. companies that operate at an international level (Clothing). The brand owner of Zara, Inditex, is the leader of the global apparel market share, followed by H&M in second place (Petro, "The Future of Fashion Retailing: The H&M). The Gap Inc.s "year-to-date net sales were $14.52 billion for the 48 weeks ended December 29, 2012, an increase of 6 percent compared with net sales of $13.72 billion for the 48 weeks ended December 31, 2011" (Press). By dividing Gaps annual net sales by the $150 billion net sales of the national apparel industry for 2012, the Gaps market share is estimated to be 9.7 percent. In Figure 3 below, the pie chart depicts Gap Inc.s market share in 2011 in the U.S. relative to its 23

competitors (Kolbe). This graph shows that Gap Inc. had a good standing with its national competitors, but has since decreased in its market share over the last year. The Gap Inc. has 13.3% of the U.S. sales, with the TJX Companies Inc. having 12.5% of U.S. sales, Ross Stores Inc. at 9.8% of sales, and Abercrombie & Fitch at 4.0% (Kolbe).

Figure 3. Family Clothing Stores in the U.S. 2011

Figure 4, seen below, shows the global market share in retail apparel in 2009 (Kolbe). As shown, TJX contains 1.8 percent, H&M with 1.5 percent, Gap Inc. with 1.4 percent, and Levi Strauss & Co. with .39 percent (Kolbe).

Figure 4. Global Apparel Retail 2009

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While fast fashion giants continue to siphon off Gaps market share, its the growing upand-comers (i.e. Uniqlo) who most threaten the retailer. In fact, Uniqlo recently launched an easily accessible and highly popular website in the U.S. featuring the brands trendy yet moderately priced clothing just in time for the holiday season (Bogenrief, Why). Clothing stores have had to change to fit the demands of their consumers. In Figure 5, seen on below, is two pie graphs demonstrate the types of clothing stores demanded from 1992 to 2010 (Kotha). Since Gap Inc. brands already cater to family needs, the increased desire for family clothing stores is a positive.

Figure 5. Clothing Store Market Composition 2010

The competition is extremely fierce in the apparel industry as less than 10 companies generate around 95% of sales (Clothing). The barriers to enter this industry are low and might be one of the reasons that the industry is so saturated. There are far too many competitors trying to come into the game without a significant competitive advantage or highly efficient supply chain. The market outlook in the retail apparel is on the constant move and changing for current trends and demands. Also, companies are moving more towards e-commerce and trying to produce products that fit within a niche market or current fashion trend. Not only does the

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industry have numerous direct competitors, but several indirect competitors as well. Some indirect competitors of the retail apparel industry include other products or entertainment activities such as movies, dinning out, and electronics. All of which take away from discretionary funds that are normally spent on clothing. The direct competitors differ in the ways they conduct business and in their strengths and weaknesses, both internally and externally. The companies examined through SWOT analysis include global competitors Zara, Fast Retailing, C&A, and H&M, as well as, national leaders JCPenney, Ross, TJX, Abercrombie & Fitch (A&F), Limited Brands, and Sears. The analysis will include each of these competitors' internal strengths and weaknesses, as well as, any external opportunities or threats to the industry. Knowing the competitors' competitive advantages, strengths, weaknesses, and place within the industry is crucial knowledge for the Gap. Branding is extremely important in the retail industry, and all of Gaps top competitors maintain strong brand recognition in the market, except for Sears and Ross who currently are having issues. Brand differentiation remains key, with consumers remaining loyal to specific names (Clothing). Gap needs to continue to build customer loyalty, such as Limited Brands and Sears have done. Several companies have multiple price points to serve a range of consumers including the Gap, Topshop, and JCPenney. The low price point leaders in the market are Ross, TJX, and C&A. The Gap is a family- orientated company along with JCPenney, and Ross. In addition, C&As strengths lay in its high brand awareness, family orientation, reputation for low prices and extensive choice (The Challenge). Most competitors have competitive advantages in the market or specialization in a certain section of the industry. H&M and Limited Brands offer a unique product at affordable prices, while Ross and TJX offer home good products. Competitors such as Fast Retailing,

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Topshop, TJX, Gap, and Ross are known for their variety of product lines to meet several different market segmentations. Additionally, companies like Topshop offer niche stores, such as vintage boutiques to cater to different consumers. Zara, H&M, and Topshop are known for their trendy styles. Like the Gap, C&A, A&F, and H&M pride their companies on quality and value products for the consumers. Topshop and Limited Brands are now offering new services such as cafes, and nail and hair salons within their stores. Even C&A expanded its business to include retail banking. The industry is moving in a new direction with several advancements with globalization, technology, and supply chain. While the Gap and JCPenney are taking strides in launching renovations throughout their businesses, JCPenney is also using new technology in their stores. Limited Brands and Sears, also, are introducing technology to stay current with their consumers behaviors and to connect with the new generation of shoppers. Topshop, A&F, and the Gap stores are internationally well dispersed, creating convenience and easy accessibility for their consumers. With new trends emerging, more companies are trying to be efficient through supply chain management. Competitors JCPenney and Gap have a diversified supplier base, while Fast Retailing and Topshop have strong store networks. Specifically, companies such as Zara & H&M are changing the apparel industry by speeding up delivery time on their products. The Gap should take note of Zaras supply chain strategy. Their supply chain strategy is based off of customer trends, and because of this their supply chain is able to respond quickly to any demands. Due to their streamlined model, the company seems to exist on the curve by evaluating customer demands before other companies who are constantly pressed to stay ahead of the curve and simply follow trends (Petro, "The Future of Fashion Retailing: The Zara"). According to the article, "The Future of Fashion of Retailing: The Zara Approach," the company "delivers new

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products twice each week to its 1,670 stores around the world. This adds up to more than 10,000 new designs each year! It takes the company only 10 to 15 days to go from the design stage to the sales floor" (Petro). The Uniqlos Fast Retailing stores expanded outside of the Japanese market because of their competitive advantage. Their CEO plans to shift the companies supply chain to be similar to that of the auto industry, concentrating on quality and spending less time staying current with clothing trends (Petro, The Future of Fashion Retailing: Uniqlo). With the success of these strengths, comes weakness within every company. The perceived weaknesses of C&A, included a lack of targeted communication with customers, the reluctance to adapt to meet local fashion needs and, more importantly, the lack of a quality fashion image (The Challenge). Zara is not a price competitor and has higher prices than H&M, little to no advertising, and keeps low inventory in stores. This can be both a negative and a positive when they have constant stock outs. Limited Brands possesses weak management and lack of scale in the global market. Also, Limited Brands has cost structure problems, as does Sears. A lawsuit is a weakness caused by an external threat. A company possessing several lawsuits and legal proceedings can tarnish a companys brand name. In the past, this has happened with the Gap and many of its other competitors. Topshop and Ross have been noted for poor quality and control management, while Ross still lacks presence outside the U.S. These stores can also be associated with confusing store layouts and weak customer service. On the other hand, A&F has a weak corporate structure and Fast Retailing has meager operational efficiency, and most of its revenue is concentrated in Japan. Numerous external opportunities for Gap and its competitors are surfacing from new trends and innovations. With the help of globalization, companies are expanding into emerging markets and are opening new stores internationally. If companies do not build their stores

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globally, then growth through e-commerce is almost mandatory. Topshop and Fast Retailing are now expanding both globally and online, while Zara still needs to expand into U.S. markets. In addition, companies like A&F and the Gap have the opportunity to create discount stores, in turn, helping them expand into new market segments. Expansion of product or product lines could be beneficial for several companies once they find a competitive advantage. H&M was the biggest user of organic cotton worldwide for the second consecutive year in 2011, according to Textile Exchanges latest Organic Cotton Market Report, followed by C&A, Nike, Zara, and Inditex (H&M). The most important lesson taken from these opportunities is to match the companys strengths, resources, and strategic planning tactics. With these three elements aligned it creates a quicker response to any external threat. External threats are unavoidable and need to be proactively addressed. The recession is considered to be an external threat, however, studies prove that businesses that continue to advertise during a recession are better able to protect, and sometimes, build, market shares (Arens, W. Weigold and Arens, C. 67). With such fierce competition in the retail industry, especially between H&M, Zara, and C&A, it is hard for any company to survive. Although H&M is a leading competitor in the retail industry, Gap acts as a second threat to H&M because of their quality at reasonable prices and their wide range of people they reach as well with their vertical company (Watts). The fashion industry is constantly changing trends based on the latest fashion updates, and undergoes constant pressure to cut prices like that of Ross and Fast Retailing. Several different product or brand substitutions are within the market, and will continue to grow in the future. The declination of resources facing our planet today can lead to legal or political threats to a company if they do not obey societys standards or use an excessive amount of material. Along with global expansion, companies face problems with strike and labor

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laws within foreign factories. They are also subject to natural disasters and power outages. Maintaining strong strategic planning for potentially negative natural or market events is very important to a companys success. Customers

As stated previously above, the Gap brand has several competitors, however, the two brands which rival it most closely include Abercrombie & Fitch and American Eagle Outfitters. Each of these brands targets the same age segmentation, shares similar product quality, and pricing. One aspect that sets them apart from one another is their image and customer service. Currently, the Gap is recognized for its iconic American style clothing. Their products have the flexibility for the customer to express their own personal sense of style, as the Gap does not brand their clothing as obviously as its competitors through logos and emblems. In 2010, the Gap attempted to change their logo, but was short-lived, as a wave of customers were outraged by the sudden logo shift. One dedicated customer even threatened, If this logo is brought into the clothing store I will no longer be shopping with the Gap. Really a bummer because 90% of my clothing has been purchased there in the last 15+ years (Ellis). The Gap immediately responded and analyzed customer feedback. The overall verdict was to keep the brand logo the same. The quality of the Gap product has fluctuated over the years. Current and former executives stated that the Gap lost touch with its customers by chasing after rivals, and cutting quality (Clifford). However, to tackle this issue, the Gap has implemented new design layouts and promotional advertising for Gap stores. Also, they have become more environmentally responsible through the materials they purchase such as organic cotton and by implementing safer factory regulations. The Gap products are sold at a premium price and range

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from $15 or more depending on the product purchased. Several sales and discounts are offered throughout the year to attract consumers. Gap customer service is ranked 181 out of the 603 companies on Customer Service Scoreboard.com, giving them an overall customer service grade of disappointing (The Gap Customer). As well, in 2011, Gaps website was ranked as one of the worst websites for customer satisfaction (Kim). However, according to recent brand rating sites such as Bizrate.com, the Gap website ranks high in overall satisfaction with an 8.9 out of 10 (Gap Review). Unfortunately, Gap stores have yet to receive positive feedback regarding their customer service. The components of this rating include satisfaction with checkout, design of site, product selection, customer support, charges stated clearly, shipping charges, and ease of finding what the consumer is shopping for. Alternatively, Abercrombie & Fitch is a brand known for their casual, yet sexy clothing. Its marketing campaign is infamous for its scandalous advertising and topless models. Their product is predominately geared towards teens and college students. Several brand rating websites rank the product quality of the clothing very high, however, there are multiple counterfeit warnings as fake Abercrombie websites are found all over the web. In 2012, the company endured a brief freak-out when a screenshot of "Abercrombie & Fitch N****r Brown Pants" appeared on the web, ostensibly being sold on Abercrombie.com (Krupnick). The fake website was quickly shut-down. Like the Gap, Abercrombie & Fitch products are sold at a premium price and range from $20 or more depending on the product. They too offer multiple discounts and sales, however, customers have complained about their ads being deceitful (Abercrombie & Fitch: Consumer). According to Customer Service Scoreboard.com, the company received 400 negative comments and 14 positive comments, ranking them 529 out of 603 companies. Their overall customer service grade was terrible (Abercrombie & Fitch:

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Customer). These comments included the following variables friendliness, issue resolution, reachability, cancellation, and product knowledge. As for the Abercrombie & Fitch website, they have been given a 77 percent in lowest overall satisfaction and three percent in highest satisfaction according to Consumer Affairs.com (Abercrombie & Fitch: Consumer). Lastly, American Eagle Outfitters is known for their stylish, casual clothing and outerwear. Their target market ranges between pre-teens to college students. Their product is raved of high quality, however like Abercrombie & Fitch, it is easily counterfeited. Similar to the others, American Eagle Outfitters products are sold at a premium price and range from $15 or more depending on the product. They also offer several discounts and sale promotions throughout the year. According to Customer Service Scoreboard.com, American Eagle Outfitters ranked 105 out of 603 companies, and was given a grade of disappointing in customer service (American Eagle Outfitters Customer). As for the American Eagle Outfitters website they were given a 67 percent in the lowest overall satisfaction rating available on Consumer Affairs.com and zero percent in the highest overall satisfaction rating (American Eagle Outfitters: Consumers). Customers are often loyal to their favorite brands. Consumers mainly make their buying decisions based off of their desire to associate themselves with certain brands because those brands allude to an image that they wish to portray (Satchu). Income also plays a very large role in consumer buying behavior. Consumers with higher disposable income may have less risk versus someone with a smaller income (Satchu). When making a buying decision multiple factors are considered including cost, image, and location. Whether a product is high or low involvement does not depend on the product, but rather the customer. Clothing retailers such as the Gap, Abercrombie & Fitch, and American Eagle Outfitters offer a product with low-

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involvement. These products are low-involvement as they are relatively inexpensive and pose little risk to the buyer if a mistake is made when purchasing them (Tanner Jr., John F., and Raymond). Low-involvement products such as clothing and perfume are often impulse buys. Some major costs the target markets must take into consideration when evaluating customer value include the price and location. The benefits of the target markets evaluation of customer value include product quality, versatility, durability, and image. Suggestions Make their philanthropic efforts more known Implement a trendy emblem for clothing to appeal to the teenage market Capitalize on the new business causal atmosphere which many offices are adapting to today

PRODUCT & PRICE STRATEGIES

Available Products Gap Inc. consists of multiple brands each with various product lines. In 1969, Gaps first product lines included Levi jeans and LP records. However, in 1974, the company expanded its store locations and began selling private label productions (Plumb). Gap Inc. is a specialty company that sells apparel, accessories, and a plethora of other products throughout its six individual brands. The chart, seen below is a brief description of each individual brand owned by Gap Inc. and their founding dates. All information was obtained from the official Gap Inc. website.

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Gap Inc. Brands: Top quality causal clothing at reasonable prices. Founded: 1969 Old Navy Fashionable, casual inexpensive clothing. Founded: 1994 Banana Republic Sophisticated expensive clothing and consists of an upscale image. Founded: 1978 Acquired by Gap Inc.: 1983 Piperlime Sells a variety of popular brand items with private label brands. Used to be only an online brand, until recently opening a physical store. Launched: 2006 Athleta Offers a product line of different womens sportswear. Gap Inc.s newest added brand. Founded: 1998 Acquired by Gap Inc.: 2008 A multi-brand specialty retailer in high fashion apparel for women. Bought by Gap Inc. in January of 2013. Founded: 1993 Acquired by Gap Inc.: 2008
Figure 6. Gap Inc. Brands

The Gap

Intermix

The Gap has continued to stay consistent with its product mix while branching out and acquiring several different product lines including: babyGap, GapKids, GapMaternity, GapFit, GapBody, and Gap for men and women. When Gap was first created, it gained the reputation of consistently carrying all jeans in all sizes. The company expanded to having private-label products and eventually went public in 1976 ("The Gap, Inc." Encyclopedia). By 1980, the Gaps sales revenue took a hit due to its indistinctive products and the lack of a brand image. This forced the company to reposition the Gap brand to a more clean image, and to focus on basic clothing items such as jeans and shirts in various colors, sizes, and styles ("The Gap, Inc." Encyclopedia). The clean Gap image with the essential clothing items always in stock brought success for the company. This success allowed Gap Inc. to expand, both within the Gap store offerings, and by adding new divisions to the corporation ("The Gap, Inc." Encyclopedia). In

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1983, the Banana Republic retail chain was bought and remodeled. Next, the Gap introduced GapKids followed by Old Navy. Unfortunately, in the 1990s, Gaps stock prices decreased and sales dropped, and it was once again time to reposition the Gap image. The Gap returned their image and attention to the basics of American clothing including khaki pants, jeans, and T-shirts ("The Gap, Inc." Encyclopedia). From the Gaps beginnings, its stores have carried high inventory levels for stocking purposes, and have continued to stay focused on the basics of American clothing. According to the official Gap website and Gap stores, the Gap offers hundreds of different styles of clothing such as T-shirts, blouses, shoes, socks, jeans, khakis, underwear, and swimwear. Its products are offered in array of colors, patterns, sizes, and fabrics, and cater to a broad age group. The charts found below provides a description of each department followed by a list of the colors, sizes, styles, collections, fabrics, and patterns they offer. Departments: Outerwear, Sweaters, One-Pieces, Polos, Bodysuits, Tops, Jeans, Pants, Shorts, Leggings, Skirts, Dresses, Swimwear, Active Wear, Shoes, Blankets, Sleepwear, Accessories GapKids Outerwear, Sweaters, Hoodies, Polos, Shirts, Blouses, Jeans, Pants, Crops, Shorts, Skirts, Dresses, Rompers, Active Wear, Shoes, Socks, Tights, Underwear, School Uniforms, Sleepwear, Accessories Gap (Men) Outerwear, Sweaters, Sweatshirts, Polos, Shirts, Blazers, Jeans, Pants, Shorts, Socks, Underwear, Sleepwear, Accessories Gap (Women) Outerwear, Sweaters, Sweatshirts, Shirts, Blouses, Blazers, Jeans, Pants, Shorts, Skirts, Dresses, Shoes, Accessories GapMaternity Outerwear, Sweaters, Shirts, Nursing Tops, Pants, Skirts, Dresses, Sleepwear, Nursing Bras, Panties, Accessories, GapFit GapFit Hoodies, Jackets, Tops, Pants, Shorts, Socks, Sports Bras, Accessories GapBody Tops, Bottoms, Gowns, Bras, Panties, Swimwear, Sleepwear, Robes Colors: All Brand Versions All different colors and shades; prime colors; pastel colors (red, orange, yellow, green, blue, purple, pink, white, brown, gray, black, and multicolored) babyGap

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Sizes: babyGap GapKids Gap (Men) Based on weight and age of baby (Ages 0-5 years) Plus, Husky, Slim, XS, S, M, L, XL, XXL (Ages 4-14+)

XXS, XS, S, M, L, XL, XXL (based on waist and length) Big and Tall: up to 44W pants; shirts and underwear up to XXL-XXXL Gap (Women) Tops: XXS, XS, S, M, L, XL, XXL Bottoms: 00-20 (based on waist and length) Petite: for women 54 and under: sizes 00P-14P and XSP-LP Tall: for women 59 and over: sizes 4T-16T and ST-XLT GapMaternity Tops: XS, S, M, L, XL, XXL Bottoms: 0-18 GapFit Women Tops and Bottoms: XS, S, M, L, XL, XXL GapBody Styles: babyGap GapKids Gap (Men) None Specified None Specified Classic, Tailored, Vintage, Casual, Dress, Versatile Women Tops and Bottoms: XS, S, M, L, XL, XXL

Gap (Women) Classic, Tailored, Vintage, Casual, Dress, Versatile GapMaternity None Specified GapFit GapBody Collections: babyGap GapKids Gap (Men) Road Trip, Neon Crush, Little Aquarium, Sugar Rush, Peter Rabbit, Baby Love, First Favorites, Spring Break, Venice Beach, Pretty Cool Things, Party Outfits, Swim Shop, Junk Food, Desert Palm, Daisy Chain Spring Break, Party Outfits, Swim Shop, Chambray None Specified None Specified

Denim Washes, Polished Style, Gap Loves, Customer Favorites, Online Exclusives Gap (Women) Gap Loves, The NEW Skimmer, Tee Shop, We Love Outfits, Desk to Dinner, Trends We Love 36

GapMaternity We Love Outfits, Babymoon Essentials, Starter Styles, Work Essentials, Pure Body, Online Exclusives, and Customer Top Picks GapFit Run, Train, Cool Down, Motion Tops, Breathe Tops, Customer Favorites GapBody Fabrics: babyGap GapKids Gap (Men) Gap (Women) Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Destination: Swim, Pure Body, Candy-Colored Panties, We Love Lingerie, and Customer Favorites

GapMaternity Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted GapFit Cotton, Polyester, Nylon, Spandex GapBody Cotton, Polyester, Nylon, Spandex Patterns: Solids, Graphics, Gap Logo, Stripes, Animation, Super Heroes, Plaid, Stars, Polka Dots, Small Animal Emblems GapKids Solids, Graphics, Gap Logo, Stripes, Animation, Super Heroes, Plaid, Stars, Polka Dots Gap (Men) Solids, Graphics, Gap Logo, Stripes, Plaid Gap (Women) Solids, Prints, Graphics, Gap Logo, Stripes, Plaid, Floral, Etc. GapMaternity Solids, Prints, Graphics, Gap Logo, Stripes, Plaid, Floral, Etc. GapFit Solids, Gap Logo, Stripes GapBody Solids, Graphics, Gap Logo, Stripes, Polka Dots
Figure 7. Gap Department Descriptions

babyGap

The Boston Consulting Group (BCG) Matrix method is based on the product life cycle theory, which helps to classify products as stars, cash cows, question marks/problem children, and dogs (The BCG). The chart below depicts the Gap brands products based on the Boston Consulting Group Matrix.

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Figure 8. Boston Consulting Group Matrix for the Gap

The main idea of the Boston Consulting Matrix is that the bigger the market share a product has or the faster the products market grows the better it is for the company (The BCG). The Gap brand has several products that can be categorized as stars, cash cows, question marks, or dogs. However, the four Gap products that most identified with these categories included: 1) Gap jeans, 2) the boyfriend shirt, 3) GapMaternity jeans, and 4) the new skimmer pants. First, Gap jeans have a very large market share due to the high demand for jeans from consumers all over the world all year long. Although everyone buys jeans from time to time, the demand for jeans is often satisfied in the marketplace and is, therefore, no longer growing. People will always need and want jeans, but almost every other retail store carries jeans, making it difficult for one brand of jeans to stand out from the others. As a result, Gap jeans would be categorized as a cash cow and will most likely stay a cash cow because consumers will continue to need jeans and there will always be competition between rivals. Second, the boyfriend shirt is a question mark product because this item is new to the market

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and not seen at other retail stores. Gap has spent money on advertising to help promote this new item, which currently adds to its strong market growth, but since it is not a popular item yet, it has a low market share. The boyfriend shirt has the potential to become a star, a cash cow, or a dog, depending on whether it becomes a consumer favorite and continues to grow in the market. Third, Gaps maternity jeans are designed specifically for pregnant women. This market is very specific, and therefore, this market has a lower market share than ones with broader characteristics. This item also has low market growth because those specific targeted customers would most likely prefer more comfortable, loose clothing other than jeans. One of the crucial marketing strategies companies must remember when targeting pregnant women is that they are in need of comfortable clothing. According to online testimonials, several women stated that they find pregnancy jeans to be either itchy, not fitting right, and or too tight (Readers). In turn, this product has a low market demand which is not likely to increase, resulting in this product to be a dog. Dogs may make enough cash to breakeven, but they are rarely, if ever, worth investing in. Dogs are usually sold or closed (Riley). However, another possible dog for Gap Inc. could be the brand Athleta because the brand of clothing consists of products and price points extremely similar to that of GapFit. Lastly, Gaps skimmer pants are a brand new clothing item that rises just above the ankle and do not resemble any close competitors products. The skimmer pants are hot, new, and trendy and have attracted many customers. It has a high growth and market share making this product a star. However, this item will not be a star forever as eventually growth will slow and, assuming they keep their market share, stars will become cash cows (Riley). Since it is has been recently released and is a brand new item, customers in the market are very interested now, but may not be as interested in the future.

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If the Gap brand should drop or add any specific items, the brand should strongly consider dropping the maternity jeans. The GapMaternity jeans are a dog and will most likely stay a dog. The maternity jeans seem to have a low market share along with low market growth expectancy. The brand would be better off promoting its more comfortable style pants for that market rather than continuing to manufacture and sell its maternity jeans. The Athleta brand could also be considered as a possible dog to drop since it is too similar to GapFit. Diagnostic Product Profile The value of a company is defined by a mental evaluation on how much a consumer will pay for a product made by a company (Pride and Ferrell 16). When it comes to the Gap, the perceived value of the company has been on the decline and has much bigger brand issues that bear far more blame" than just the current recession (Manning-Schaffel). According to the Brandchannel, Gap has been unable to continue to portray their image of accessible, everyday fashion that they have made their living off of (Manning-Schaffel). Overall, it seems that Gap has lost touch with their central focus, and in turn, has lost a great deal of brand value through confusing advertisements, that make once loyal customers feel out of touch. The Gap fell hook, line, and sinker for the 'cutting edge' strategy where if you don't understand it, you can't be hip enough to buy it" (Manning-Schaffel). Unfortunately, Gap also resorted to cheaper quality, which upset several consumers, and is another reason Gaps brand value has decreased (Manning-Schaffel). Gaps brand value has slipped in the market with new companies like J. Crew stealing their market share. In 2012, for the first time ever, J. Crew surpassed Gap in regards to consumers personal evaluations of the brand value (Marzill). Although, Gap has seen strong improvement in sales over the last year, they still have a long journey to gain back their brand awareness and desire for their products. Figure 9 found below is a graph from January 40

2008 to March 2012, which represents the responses from women 18 years and older when their were asked Do these brands give good value for what you pay? for companies such as J. Crew, the Gap, American Eagle Outfitters, Express, Urban Outfitters, and Hollister (Marzill).

Figure 9. Brand Value vs. Price Graph

The industry life cycle of retail apparel is currently in the maturity stage, and has been for sometime. This stage is characterized by intense competition because many brands are now in the market (Pride and Ferrell 279). There will always be a demand for fashionable, affordable clothing, which makes both Gap Inc. and the Gap brand a leader in the retail industry, and thus avoids them from being squeezed out like other weak competitors during this stage (Pride and Ferrell 279). According to Pride and Ferrell, there are three strategic objectives the company should work towards during the stage of maturity including increasing share of customers, maintaining share of market, and generating cash flow (Pride and Ferrell 280). Gap Inc. had a strong year in 2012, and increased its store sales of $20 per store square foot, making it seem as if Gap Inc. was on its way back to the top of the market (Gaps Expansion). Of the four product

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lifecycle stages, Gap jeans product life cycle is currently in the maturity stage, which is described as the stage of a products life cycle when the sales curve peak and starts to decline as profits continue to fall (Pride and Ferrell 279). The jean industry holds a large market, and there will always be a high demand, especially, as the Gap brand expands globally, however the jean industry is becoming saturated with competitors, giving consumers a variety of options to choose from. The Gap can improve their sales and strategy through enhancing their online and technological sales and outreach. Currently, online sales are improving, however, they still fall behind newer rivals such as H&M (Gaps Expansion). To combat this shortage, they have "launched an iPad app, and mobile-optimized sites and ecommerce sites in Japan, which completes its online presence in key markets such as Europe, Asia, and North America" (Gaps Expansion). However, Gap Inc. and the Gap brand need to continue to find new ways to reach their customers through the digital form, in order, to stay competitive with their rivals. Brand equity is the marketing and financial value associated with a brands strength in the market (Pride and Ferrell 285). In addition, brand equity is made up of four contributing factors: brand-name awareness, brand loyalty, perceived brand quality, and brand associations (Pride and Ferrell 285). Brand recognition consists of a customers awareness that the brand exists and is an alternative purchase (Pride and Ferrell 286). Gap Inc. and Gap brand both have high recognition in the national market and are growing extensively internationally. Although, a flaw we see with the Gap brands recognition is that their clothing displays no emblem, which helps to identify that it is a Gap product. Several of Gaps rivals such as Abercrombie & Fitch and Hollister have successfully utilized this brand strategy. Brand loyalty is another major factor of brand equity and evaluates a customers favorable attitude toward a specific brand (Pride and Ferrell 285). As stated in the article, The Gap is Using Postagram to Build Loyalty the

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company announced that they would be giving away one million free printable postcards to their Facebook fans [for] an easy way to convert any photo from their profile to send to their family and friend for the 2012 Christmas (Maffin). They claim to be doing this to build brand loyalty and create an emotional connection to the Gap brand (Maffin). The rapid innovations in consumer technology have provided buyers with new tools for discovering, comparing, evaluating, choosing and experiencing brands which has led to a decrease in brand loyalty. In fact, between 2006 and 2010, American brand loyalty declined sharply (Gownder). Figure 10, shown below, conveys how technology has eroded brand loyalty when it comes to the decision of which brand is most important (Gownder).

Figure 10. Technology Erodes Brand Loyalty

Brand preference is defined as a degree of brand loyalty in which a customer prefers one brand over competitive offerings (Pride and Ferrell 286). In order to maintain brand preference, the Gap needs to work towards brand insistence, so the brand will always be the purchase choice,

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even if it means the customer must go out of their way to get the product. The Gap brand needs to continue to monitor its competitors products, which are geared towards teenagers such as Abercrombie & Fitch and American Eagle Outfitters, in order, to gain back and hold brand preference among this age segment as they once did. Lastly, brand association consists of associating ones image with celebrities, other businesses, charities, or other products in order to heighten ones brand image. Over the past decades, Gap Inc. has utilized several celebrity endorsements in their advertising for the majority of their brands such as Mr. T, Vanessa Hudgens, The Griswolds, and the Backstreet Boys. However, the Gap brand itself has had major celebrities such as Madonna, Missy Elliott, Sarah Jessica Parker, Lenny Kravitz, Audrey Hepburn, and more. Within several of the Gap brand commercials, a common theme was branding their jeans by intertwining them with celebrity associations. Gap Inc. also works with charity and entertainment organizations including Susan G. Komen for the Cure, the (RED) campaign for fighting against AIDS in Africa, the music festival Lollapalooza in 2012, the Bonnaroo Music & Arts Festival, and the Wanderlust Music and Yoga Get-Together (The Gap Tees). The Gaps stocks have risen, and with the renewed interest from its new ad campaigns, Gap Inc. is using sponsorship to keep the momentum going for its namesake chain (The Gap Tees). The Gap will be at Lollapalooza, the Bonnaroo Music & Arts Festival, and Wanderlust events with silkscreen printers so that customers will be able to design their own T-shirts to help promote the Gaps Be Bright and Be Your Own T campaigns (The Gap Tees). The company has decided to work with other brands to help reach new audiences or make a deeper connection with existing fans (The Gap Tees). The Gap Inc. and Gap brand have several new strategies in the work of digital mediums and believe their strong performance gives [them] the confidence to make this move to bring each brand together with the goal of gaining market share

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around the world and shareholder value (Gap Inc. Creates). Gap Inc. as a company has made a huge push in going green "from the manufacture of [their] clothes to how they are packaged and shipped" (Environment). Since Gaps clothing does not come in individual packages when purchased from the store, most of their packaging comes into play with the flow of products through their supply chain. Gap Inc. has already "switched to using post-consumer recycled paper for price tickets" (Vaccaro). Also, Gap Inc. only uses recycled paper in their packaging, their gift cards are made of 88 percent recycled content, and the corporation is continuing to work to reduce the amount of cardboard boxes they use during shipping (Gap Inc, Social). From redesigning their packaging to more efficient containers, Gap Inc. has eliminated 57,000 tons of cardboard and 63 million yards of plastic bands per year from its U.S. operations, according to the companys fifth sustainability report (Gap Inc. Using). Some ways they have made drastic reductions include changing the cartons used for shipping from factories to distribution centers, and reducing the amount of cardboard they use (Improving). Simple steps such as finding innovative ways to reuse the boxes has eliminated around 12 million cartons a year from Gap Inc.s supply chain.... and minimized [their] waste by 57,000 metric tons annually (Improving). These environmentally conscious actions taken by Gap Inc. have helped improve Gap's image as a retail company working to make a difference. A brands personality is something to which the consumer can relate to. An effective brand personality will increase its brand equity by having a consistent set of traits (Brand Personality). According to Investopedia, there are five main brand personalities including sincerity, which the Gap brand is most recognized for. The personality, sincerity, includes traits such as genuine, kind, family-oriented, and thoughtful (Brand Personality). The Gap brands

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personality can be defined in several ways, but the two most relevant would be genuine and family-oriented. The Gap is considered to be genuine based on the consistency, types, and price points of the products they offer. Gap is also a family-oriented brand because they offer products to all members of a family no matter what gender or age. Finally, Gaps fun, versatile basics add to its overall wholesome family image. New Product Development Amongst the Gap Inc. brands there has been a limited number of new products released over the past years. In 2006, Gap featured its (RED) campaign, which benefited the cause to help eliminate AIDS in Africa (Gap Introduces). This campaign received an overwhelming amount of attention and support, as several celebrities sponsored the product line. However, no major products have been released from the Gap since then. As of 2013, their most recent product is the new skimmer jeans collection, featuring jeans that cut off slightly above the ankle. So far, this product has received positive feedback from fashion blogs and customer opinion. Old Navy has implemented plus sizes into their product lines, which has not only increased their revenue, but has reached out to a larger consumer demographic. In 2009, Banana Republic introduced the Mad Men collection, which based its fashion of the hit TV show, Mad Men (Elliot, A Blitz). This collection features chic 1960s inspired attire, and caters to both men and women. Each year, along with the new season of Mad Men, a new collection is released. This themed collection has been a success amongst consumers. Banana Republic also launched the Heritage Collection and BR Monogram collection, both of which received rave reviews. Finally, in 2013, Gap Inc. bought the high-end womens fashion boutique, Intermix, and plans to double its current store count of 30 and look for opportunities to expand overseas (Mattioli). Intermix will allow Gap Inc. into the more important luxury market. Intermix has a strong following, and has 46

sales of around $130 million a year (Mattioli). Although Gap Inc. has released successful products over the years, there have been very few new products, particularly, under the Gap brand. On the other hand, Gap Inc.s top competitors Abercrombie & Fitch and American Eagle Outfitters have introduced several new products over the past years, all with differing levels of success. Abercrombie & Fitch is known for pushing the boundaries with their sexual innuendos and scandalous advertising. The majority of their new products have received backlash for being too provocative and inappropriate for their young targeted age market. In 2002, Abercrombie & Fitch released cheeky T-shirts with racist undertones, specifically, geared towards Asians. One of the T-shirts read Wong Brothers Laundry Service Two Wongs Can Make It White (US Company). These offensive T-shirts triggered protests from Asians who complained that they perpetuated racist stereotypes stating, This is really blatant. It is just like the 1800s (US Company). Abercrombie & Fitch apologetically replied, The thought was that everyone would love them, especially the Asian community. We thought they were cheeky, irreverent and funny and everyone would love them. But that has not been the case (US Company). The company has run into this same scenario before, receiving criticism for featuring young, nearly-naked models in sexually provocative poses, and for inadvertently promoting under-aged drinking through their advertising spread entitled Drinking 101, which contained recipes for strong alcoholic beverages (US Company). Also, in 2002, Abercrombie & Fitch introduced thong underwear in childrens sizes with the words eye candy and wink wink, printed on the front (Abercrombies Sexy). Parents were outraged by the sexualized underwear, however, unlike the racist T-shirts this product was not pulled from stores. Abercrombie & Fitch stated, The underwear for young girls was created with the intent to be lighthearted and cute. Any

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misrepresentation of that is purely in the eye of the beholder (Abercrombies Sexy). Most recently in 2011, Abercrombie & Fitch launched its Ashley bikini, a padded bikini top for girls ages 8 to 14. Accused of sexualizing young girls, and parents refusing to purchase the bikini top for their daughters, the product was ultimately removed from its website (Mascarenas). However, Abercrombie & Fitch remains to be a top competitor through the variety of products it offers and because of its infamous brand image. American Eagle Outfitters has offered several new products including, Aerie lingerie, Martin + Osa, and skinny skinny jeans. Developed in 2006, Aerie is a sub-brand targeting women ages 15 to 21. Sold in all American Eagle Outfitter stores and its own stores, Aerie has become a rival of both Abercrombie & Fitchs intimates and Victorias Secret because their products are fashionable and relatively cheap. As of 2011, Aerie held a market share of two percent in womens intimates, and has been climbing ever since (American Eagles Aerie). In 2006, American Eagle Outfitters also established its chic product line, Martin + Osa. Catering towards a more mature age bracket, 25 to 40 year olds, Martin + Osa went under after only four years. According to WWD, the label created an after-tax loss of about $44 million in fiscal 2008 which is heavily linked to its closure (O'Reilly). American Eagle Outfitters has decided to continue to focus their market on a younger demographic. In the companys most recent campaign, Skinny Skinny Jeans, American Eagle Outfitters attempts to become a little more edgy to compete with its main opponent, Abercrombie & Fitch. The campaign features young adults talking about their love of really skinny jeans, while wearing what appear to be revealing painted-on paints (AEO Gets Cheeky). Bob Holobinko, American Eagles vice president of brand marketing, states, When we fail to push things further, we become safe and dont cut through the industry (AEO Gets Cheeky). So far, American Eagle Outfitters is happy with the

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response to the skinny skinny jeans campaign, and through social media sites the product has received positive feedback. Overall, American Eagle Outfitters has launched numerous new fashion trends in its main categories such as denims, knit-tops, and shorts. This success is due to the increase in the variety of products including different colors, washes, and designs (AEO Preview). Based on the competitors products, the Gap brand should be developing more unique products and a variety of them. The Gap needs to take risks through their advertising and merchandise to appeal to new viewers and to gain the attention of the teenage demographic. Three products that could be incorporated into Gap stores include emblematic merchandise, developing a unique jewelry line to complement their color scheme, and featuring or supporting the brands philanthropic efforts through its merchandise. For the emblem, we suggest a seal or the date 1969, both of which tie to the Gaps founding location, San Francisco, and the companys opening year. This product line would feature bright colors such as neon pink, yellow, blue, and green, and act as a throwback to the 1960s era when Gap was first created. However, the designs and clothing styles would be modern and fashionable. Artists could contribute their work to these shirts, and customers could vote online to see which ones they liked the most. Those that were chosen would be put into production and sold throughout their stores and online. The Gap is known for their stylish, colorful basics, however, they currently offer limited accessories to match the interesting colors in their products. An inexpensive jewelry line would fill this gap and create pieces to accessorize with the basic items and colors they offer. Lastly, the Gap should create merchandise that emphasizes and supports their efforts to be more socially and environmentally friendly. This product line would help support Gaps P.A.C.E.

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program and Recycle Your Blues campaign. It would also utilize organic cotton and ecofriendly dyes. Of these three proposed products, establishing emblematic merchandise would be the most beneficial. Having an emblem will give Gap clothing an identity, which will appeal to younger audiences. Also, by providing unique designs and bold color schemes, the Gap will be taking a risk with their product, which has been in demand for a long time from consumers. Channels of Distribution (Retailers and Wholesalers) As previously stated, the Gap brand has expanded globally. There are 1,379 company stores and 259 franchises worldwide (2011). In the United States, there are 889 company stores and only two franchise stores (2011). Currently, the company is in the process of opening additional international outlet stores and Gap stores in China (2011). Gap is a vertically integrated retailer, which means that the company controls the entire product life cycle, from design to manufacture to distribution (Petro, Pricing). There are various channels in their supply chain which extend from people working at farms where cotton is grown, to factories, manufacturers, warehouses, distribution centers, and retail stores. Nearly all of the products are designed by Gap and manufactured by independent sources. About one million workers produce their products in more than 1,300 factories across nearly 50 countries (Reporting). They purchase private label and non-private label merchandise from over 1,000 vendors with facilities in 43 countries (2011). Approximately, 98 percent of all of Gap Inc.s merchandise sold in 2011 was produced outside of the United States while the remaining two percent of all units were produced domestically (2011). Approximately, 26 percent of their merchandise was produced in China (2011). Gap Inc. owns roughly 8.6 million square feet of distribution space located in Fresno, California; Fishkill, New York; Groveport, Ohio; Gallatin, Tennessee; Brampton, 50

Ontario, Canada; and Rugby, England (2011). Two separate third-party logistics companies provide logistics services to Gap Inc. through a distribution warehouse in the city of Shanghai, China, and Japan (2011). H&M and Zara are key competitors when it comes to supply chain management because they both work on cutting down their product delivery time, and creating more efficient supply chains. Zara has changed the rules of the game while surpassing Gap as the largest retailer on earth due to their impressive supply chain strategy (Bogenrief, Future). The companys strategy is built around consumer trends by delivering new fashions as soon as a trend emerges. Zara delivers new products twice each week by being efficient and flexible. It only takes them 10 to 15 days to go from the design stage to the sales floor (Petro, The Future of Fashion Retailing: The Zara ). Since Zara stays up with current trends, they are able to adapt more easily to change, unlike the Gap, which has longer lead times and is not up with the latest trends. H&M, on the other hand, was a pioneer in vertical integration and outsources production to 800 suppliers (Petro, The Future of Fashion Retailing: The H&M). They demonstrate fast retailing because its production offices are located within proximity to its suppliers. Another contributing factor is their IT system, which allows the company to control the process from design to sales (Petro, The Future of Fashion Retailing: The H&M). As soon as a product is sold it is replenished from the central stockrooms. H&M is going green with their logistics and distributions by focusing on simplicity, reliability, and transparency. Their airfreight volumes have been halved in just a few years and over 90 percent of their transportations are by ocean, rail or road (Logistics). Each of the companies, Zara, H&M, and Gap, monitor point of sales and inventory, however, Gaps supply chain follows a more traditional model with larger batch

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sizes. Gap Inc. is working to shorten lead times on ordered merchandise and maximizing sales per square foot, as well as, focusing on their social responsibility program. Gap Inc.s main competitive advantage is its social responsibility efforts within their supply chain. They strive to improve the use of water in the manufacture of denim products. Currently, 100 percent of their branded denim is made in compliance with Gaps Water Quality Program (Reporting). The company has also reduced electricity consumption in their distribution centers by 40 percent with the installment of more than 16,000 energy efficient light bulbs (Facts Gap Inc.). Gap is in the process of reducing the absolute greenhouse gas emissions from its operations in the United States by 20 percent by 2015 (Gap Inc. Details). In order to reduce the amount of packaging, Gap Inc. has redesigned cartons used to ship apparel from factories, to distribution centers and finally to their stores. They have reduced overall costs including ocean freight costs. This has cut 12 million cartons a year, and has decreased disposal costs by 10 percent (Improving). Also, through various Gap Inc. programs, like P.A.C.E., they are helping improve communities and aiding their workers with necessary skills. With the Recycle Your Blues campaign they encouraged their customers to donate their used jeans to be used to insulate homes in underprivileged communities. This campaign helped raise awareness of the cycle of denim products and the ways cotton can be recycled. Through the P.A.C.E. and C.A.R.E. programs Gap has helped empower female factory and garment workers. From the P.A.C.E. program 36 percent of women reported a better workplace relationship and increased communication skills (Advancing). When it comes to Gap working with factories they make sure that they meet the Code of Vendor Conduct (COVC). According to the Gap website, Gap monitors 99 percent of their factories. First, the factories must pass an audit assessing its working conditions (Approval).

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After the approval, monitoring is an important component in Gap Inc.s program. They then rate them to see if they meet their operational objectives of quality, cost, and speed. If problems are found, the next step is remediation and they develop a solution. Lastly, they focus on capacity building through their Vendor Development Program. The Vendor Development Program is split into three stages. These stages involve helping vendor and factor management to detect and remediate specific social and environmental problems by implementing human resource management systems and establishing social and environmental goals (Capacity). Below are two graphs demonstrating Gap Inc.s factory ratings with their four-color system (DataFactory). Figure 11, shown below, depicts Gap Inc.s factory rating comparison from 2009 to 2011. Figure 12, shown below, demonstrates the companys 2011 factory ratings by geographic region. The graphs show that Gap Inc. focuses on improving their action required factories. However, their excellent and good factories have stayed relatively the same. Their major problem regions include the Persian Gulf, followed by the North Africa and the Middle East region, which means that the company should be focusing on improving these factories.

Figure 11. 2009-2011 Factory Ratings Comparison

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Figure 12. 2011 Factory Ratings by Geographic Region

Through the use of the Internet, Gap is able to reach over 90 countries worldwide through company-owned websites and by using a U.S. based third party that provides logistics and fulfillment services (2011). From allowing their customers to shop from all Gap Inc. brands from one shopping cart, and only making them pay one shipping fee, Gap Inc. is able to make it easier for their customers to purchase their products. They deliver products by U.S. Postal Service (USPS), United Postal Services (UPS) and Federal Express (FedEx). Gap Inc. offers international shipping through the market leader in international ecommerce, FiftyOne Global Ecommerce. Through cross-channel inventory management Gap Inc. is able to ship using the ship-from-store program, which allows customers to order online and pickup in store ("Gap Will Expand). The company uses real-time inventory tracking and Oracles Retail technology systems unit to develop some custom applications in-house. A single batch of technologies serves to power all of its brands online stores ("How To). By improving their inventory management Gap will increase their product distribution efficiency and create a more effective supply chain. 54

Suggestions Must develop new products in order to stay competitive Develop an emblem for clothing and integrate brighter, more youthful colors into clothing Continue to upgrade with the latest supply chain improvements to help create differentiation through their distribution strategies

PROMOTION STRATEGIES & PRICING STRATEGIES

Marketing Communications Mix The Gap brand utilizes all five of the promotional tools including advertising, sales promotion, public relations, personal selling, and direct marketing. The Gap has had very little commercial advertising since their 1990s khaki campaign. During the mid 2000s Gap was accused of loosing sight of its consumers wants and needs, and both Gap sales and consumer loyalty fell. However, in 2012, Gap released their new Be Bright campaign from which has starting to gain back market share and change consumer attitudes about the brand. New marketing executive, Seth Farbman, has altered in-store advertising so that it is stripped down to large, emotional images (Zmuda). Farbman states that the Be Bright campaign is not terribly glamorous, honestly. Were just getting really fundamental and foundational. Its maybe a rediscovery or a recommitment to what it truly means to be Gap (Zmuda). Measured media spending for the first three quarters of the year, before the big holiday boost, reached $40 million, compared to last years total spending which only reached $26 million (Zmuda). Stores are receiving a facelift in order to create a more engaging atmosphere such as installing community tables featuring charging stations and baked good displays. Also, fitting rooms will

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now feature historical pictures of the Gap and the founding family, the Fishers. The Gaps classic brand image, once tampered with, stands strong, and is shown on all packaging. This campaign has spurned several in-store and online sales promotions to help generate interest in the new merchandise and to help decrease older inventory. The Gap possesses strong public relation skills. Not only are they becoming more socially and environmentally responsible, they have produced and supported several campaigns and product lines that have been successful in aiding various charities and causes such as the 2006 (RED) Campaign, the Recycle Your Blues Campaign, and the P.A.C.E. program. Most recently, the Gap repackaged their gift cards to be more eco-friendly and marketed them as the gift card that gives back with 2 percent of the purchase price benefitting CARE or Communities in Schools (Zmuda). Also, the Gap has a heavy online presence, which helps to communicate with fans and supporters. The Gap does very little personal selling, except for within Gap stores. The Gaps most utilized promotional tool consists of direct marketing. Over the past years, Gap has increased its technological presence immensely by having accounts on Facebook, Twitter, LinkedIn, Pinterest, and Youtube. They have updated their website to be more user-friendly and functional, as well as, created a Gap app for smart phones. This app allows for consumers to find, save, share, and buy products when it is convenient for them (Gap. iTunes). The Gap also sends promotional emails and coupons to those that sign up for email updates. Using catalogs as a direct marketing tool has been replaced by Styld.by, a digital destination where fashion bloggers from popular sites such as Refinery29 and Lookbook.nu style and showcase Gap clothing (Zmuda). On the Styld.by website, there is an option to look through all of the Gap Inc. brands that showcase new product, which has a share button to all the latest social media for viewers to share with their friends, as well as the price of all the clothing offered

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(Styld.by). Styld.by is just one example of the brand's efforts in the social-media and digital space (Zmuda). Gaps main competitors Abercrombie & Fitch, American Eagle Outfitters, and H&M utilize all of these promotional tools. With the Internet, the opportunity to market directly to consumers has expanded. Each of these retail companies targets the younger demographic, which have grown up in the digital age. For this reason these retail companies primarily use direct marketing via the Internet to reach their target markets. Diagnostic Advertising Profile An advertising budget for a company like Gap Inc. will continue to grow in expense to be able to maintain its global market share. While in 2002, some adjustments to spending may have been made, it seems Gaps advertising budget had remained intact (Can Gap Mend). As for 2006, it was estimated that Gap Inc. spent 19.5 percent less then the previous year at the price of $394.2 million (Will Gaps Ads). More recently in 2010, Gap Inc. reported it spent $114 million on marketing during the second quarter, up $13 million compared to a year ago (Elliot, Gap). If one multiples the expense of the one quarter by four, Gap Inc. advertising could be as high as $465 million for the year 2010. In the same year, the Gap Inc. spent $70.5 million on advertising for only the Gap brand alone (Elliot, Gap). The high price of advertising enforces how important it is for effective advertising, but also having the right people to get the job done. The Gap Inc. and Gap brand have gone through several strategy alterations, which can be directly related to the companys advertising agencies. In March 2002, Laird and partners was the Gap brands advertising agency (Zmuda). In need of support due to the changing global business, Gap started working with Ogilvy & Mathers Worldwide for their global advertising in 2011 (Gap Inc. Announces Major). In addition, Seth Farbman was named the Gap brands 57

global chief marketing officer, who has worked with such companies as Coca-Cola, UPS, and Time Warner Cable (Gap Inc. Announces Major). However, the Gap brand did accomplish their goals for their 2012 holiday campaign, Love Comes in Every Shade, by decreasing its reliance on a main global agency, in favor of a roster of agencies tapped on an as-needed basis, such as Peterson Milla Hooks and AKQA (Zmuda). The brand seems to have gotten on track with this new approach and plans to increase in digital media to reach the consumer in recent campaigns. Through a thorough analysis of over 100 commercials and print ads of the Gap brand from October 2010 to March 2013, viewed from the Gap brands YouTube account, revealed several advertising objectives and strategies. The Gap brand seemed to consistently utilize the emotional appeals in their advertising. The company employs such strategies as retail advertising to encourage potential customers to buy a specific product[s] in their TV commercials (Samuels). Possible objectives of promotions are to create awareness, stimulate demand, encourage product trial, identify prospects, retain loyal customers, combat competitive promotional efforts, and reduce sales fluctuations (Pride and Ferrell 466). The Gap brand objective seemed to be working toward regaining back market share from its competitors through brand awareness, retaining loyal customers, and stimulating demand with different campaigns. Advertising objectives guide campaign development and should include objectives such as a time-frame, measurability, and precision (Pride and Ferrell 492). Precision and measurability allow advertisers to evaluate advertising success at the end of the campaign in terms of whether objectives have been met (Pride and Ferrell 492). After earning a nod as Ad Age's Marketer of the Year in 1997, the one time marketing powerhouse watched its fortunes fade in the 2000s (Zmuda). According to Natalie Zumda, from Advertising Age, this was due to

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their marketing [being] inconsistent and the brand seemed to lack the crystal-clear vision that made it such a success in the first place. Former and current executives depict a company that chased after rivals, rather than charting its own course, and that cut quality and lost touch with customers (Clifford). Their core focus has drastically shifted from womens career wear, to denim, to tops leaving customers bewildered (Clifford). However, their core focus is not the only thing that constantly fluctuates, but their brand message as well. In 2002, they shifted out of a more responsible brand message and opted for confusing, obtuse, media-driven advertising that essentially had no message (Can Gap Mend). Even some improvements in strategies were stated by a Gap spokesperson that they are re-focusing on [their] brand positioning, [their] customer, and on delivering great design, even though most customers did not take this message away from their new advertising strategies (Can Gap Mend). Sometime in 2007 advertising executives at Gap came up with a plan. If they put comedians, actors, musicians, and other celebrities in their holiday ads, theyd be able to sell all their products tenfold (Nelson). As for the 2009 Holiday Cheer Campaign, which offered a fresh voice featuring choreographed dancers and models belting catchy holiday cheers about defying convention, and captures the essence of Gaps roots but also looks forward with an optimistic eye on America (Gap Jumpstarts). Recently in the last year, early signs indicate the brand may finally retake its position as the arbiter of casually cool, classically American style (Zmuda). Figure 12 shown below is a timeline of the Gap Inc.s marketers (Zmuda).

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Figure 12: Gap Inc. Marketing History

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Through examination of the Gap brands advertisements via the AIDA model, one can see where some advertisements fall short and help measure how effective the ad was. The AIDA model begins with the attention stage is followed by interest, desire, and action. The pyramid model shape helps illustrate the foundation for each stage that needs to be fulfilled first in order to move up stages to increase action from the consumer. Figure 13 shown below is an example of the AIDA model (Godfrey).

Figure 13. AIDA Model

During the attention stage of the AIDA model, the attention-getting device should be dramatic, powerful, and intense. It must also be appropriate, relating to the product, the tone of the campaign, and the needs or interests of [the] intended audience (W. Arens, Weigold, and C. Arens 323). The Gap brands commercials achieved the attention stage through their campaigns Love Comes in Every Shade, Be Bright, and Diane von Furstenberg collection. However, the GQ campaign, Be Your Own T campaign, and Denim Moves You campaign, with Lil Bud, struggled to hold ones attention to stay tuned in long enough to even realize what brand was being advertised. It is vital for commercials to hold the viewers attention long enough in order to be able to recognize the brands logo at the end of the ad, especially, when Gaps products are

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not differentiated enough from their competitors. If an advertiser cannot hold the consumers attention, they will never be interested in purchasing the Gap brand, and never create a desire for the purchase of that advertised product. The interest stage carries the prospective customer now paying attention to the heart of the message (W. Arens, Weigold, and C. Arens 323). The Gap is very symbolic with their print ads, such as making shapes or designs with human bodies. With advertisements such as these, it gives the Gap a way to form a creative identity and help make the ad memorable without seeing the logo. Commercials about Gaps 1969 jeans, their P.A.C.E. program, or SeaVees X shoes not only hold your attention, but also create interest with their interview style ads. They also use the appeal of high emotions with historical background that helps tie to the consumer. During the desire stage of the AIDA model, the writer encourages prospects to picture themselves enjoying the benefits of the product (W. Arens, Weigold, and C. Arens 324). Some Gap brand advertisements reached the desire stage such as their P.A.C.E. program or SeaVees X campaign. Most of Gaps commercials are filled with music, dancing, and recently, extremely colorful clothing with their Be Bright campaign. While some ads visually display their products well, others are lost in the chaos of the commercial, thus leaving the customer confused on what they just experienced. Multiple advertisements from the Gap brand did not reach this stage because they lacked the fundamental stages of interest and attention. The SeaVees X campaign uses special details to enhance their commercial with vintage photography and a storyline that builds the brand and creates awareness for their new product. The final stage in the AIDA model is action, the purpose is to motivate people to do something send in a coupon, visit a Web site, visit the store or at least to agree with the advertiser (W. Arens, Weigold, and C. Arens 325). The Gap fails to emphasize a call for action for their products even though consumers might desire them when they were viewing the

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ad. Due to the age group Gap is marketing to, 18- to 34-years old, [which] is only drawn in by sales and promotions makes it crucial for the Gap to help consumers achieve the action stage of the pyramid (Gaps Marketing Strategy). Originally, the Gap brands print ads seem to contain no call to action for the consumer, but have been recently reaching out through digital media, such as Facebook, while offering new promotions and discounts. An example of a commercial which the Gap could use to reach the action stage would be to create a call to action during one of their P.A.C.E. program commercials to help make a difference in others lives. The P.A.C.E ads seem to only inform the consumer about the cause to help improve the companys image, but is not asking for user interaction with the customers to help create ties to the program. According to Pride and Ferrell, in the textbook Foundations of Marketing: The Gap has a Give & Get program that donates 5 percent of purchases to nonprofit organizations for up to $2 million. The program has raised more than $9 million since its implementation. Such cause-related marketing links the purchase of products to philanthropic efforts for one or more causes. By a contributing to cause that its target market supports, cause-related marketing can help marketers boost sales and generate goodwill (466). With all of the programs and charities Gap Inc. is involved with, cause-related marketing is an effective way for the company to create a unique and strong connection with consumers. Finally, an in-depth analysis of the Gap brands March 2013 commercial and campaign for SeaVees X, where the SeaVees X company joined up with Gap to create the perfect California shoe. The 39-second commercial starts with the historical background of the Gap and its founders, Don and Doris Fischer in 1969 opening their first Gap on Ocean Avenue, with a steady drum beat in the background. With the use of old photography, unique cinematography,

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and various filters throughout the commercial, it helps to capture the attention and interest of different viewers. The drawback of this advertisement would be the monotone voice of the man speaking in the background, and the unoriginality of the California shoe. However, the commercial completes the AIDA model and possess the potential to create brand loyalty among the Gap and SeaVees customers. However, there is still a possibility for the brand not to reach the attention and interest stage of their target market. The emotional appeal presented throughout the ad helps to increase the desire of the product, resulting in a potential purchase action. It is unlikely their consumers will remember this ad or product without repeat exposure. If the viewer finds interest or desire for the product the ad has the potential to increase sales for the SeaVees shoes. Overall, the commercial seems to use a distinctive way to present a new product, but unfortunately is held back by the undifferentiated shoe as shown below.

Figure 14. SeaVees X Shoes

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Diagnostic Sales Promotion Profile Currently, there are very few Gap sale promotions both in-store and online. Gap stores are mainly focusing on eliminating the last of their winter wear to make room for new summer wear, especially, with the success of the Be Bright campaign. Two of the in-store promotions consist of a limited time only offer of an additional 30 percent off of markdowns, and the continual Super Tuesday, where every Tuesday Gap card members receive 10 percent off their purchase both online and in-stores. Online sale promotions include a limited time only offer of 25 percent off your online purchase, and up to 50 percent off select styles both online and instores (Gap Inc. Official Website). For these particular sale promotions, store displays are very simple, consisting of minimal text and color, and all sale items are located at the rear of the store near the fitting rooms. The objectives and strategies for these promotions are to entice customers to try on and buy these sale items so that the store may bring in new merchandise. Also, by placing these sale items at the back of the store near the dressing rooms, consumers are not only exposed to the new merchandise upon entering the store, but the close proximity of the sale racks and dressing rooms creates a convenience for shoppers. This, in turn, generates interest and a potential reason for customers to come back. These sale promotions have been successful because they drive in more customers and are a way to promote and showcase their new merchandise. The sales promotion that our group found most intriguing was Super Tuesday. This sales promotion is not only an incentive to join as a Gap card member, but is a way of building customer loyalty throughout Gap Inc. brands. By becoming a Gap card member one receives exclusive offerings not only from the Gap, but Old Navy and Banana Republic as well. The image of the Super Tuesday sales promotion for both online and in-stores can be found below.

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Figure 15. Super Tuesday In-Store Advertisement

This sales promotion is very clear to comprehend and gives those that are not Gap card members an incentive to join today, therefore, generating more customer loyalty and value. A way this sales promotion might be improved is to help customers understand all of their options by placing the logos of all the brands and explain how the card applies to the multiple brands. This would create more interesting visual imagery for the advertisement design, and allow people to quickly identify what this promotion could go towards instead of listing it so that the viewer must read. Also, by highlighting the brands logos this will help to stimulate brand recognition. Public Relations, Direct Marketing and Internet Promotions Over the years, Gap has been involved in various public relations activities in order to create and maintain favorable relationships with its customers. The most common public relations tools Gap uses include blogs, press conferences, and press releases. Some of Gaps 66

current public relations include supporting women with its P.A.C.E. program and promoting their Recycle Your Blues Campaign. Both of these have helped enhance the companys image along with their social responsibility. In 2012, Gap Inc. also collaborated with American Red Cross and donated more than one million dollars to help with the Hurricane Sandy tragedy. They donated more than $250,000 worth of clothing and $750,000 to help those in the affected areas ("Gap Inc. Announces Donation). Sponsoring events can also help increase brand recognition. Gap sponsored the American Women: Fashioning a National Identity, the spring 2012 exhibition at the Metropolitan Museum of Art Costume Institute. Since the company is an American brand they help shape the lifestyle of the American woman (Gap Sponsors). Other events that Gap has sponsored include Lollapalooza, the Bonnaroo Music & Arts Festival and the four-stop Wanderlust music and yoga get-together (The Gap Tees). All of these previously mentioned public relation activities were effective and helped contribute to the Gap brand. However, this is not always the case. As previously mentioned, when Gap announced they changed their logo customers were upset. The Gap missed the opportunity to engage with the online community wasnt the right project at the right time for crowd sourcing (Gap Listens). The Gap brand participates in online retailing, retailing that makes products available to buyers through computer connections (Pride and Ferrell 443). The company is able to inform their customers about the brand and its products through this direct marketing strategy. Today, the majority of companies participate in online retailing because of its growing popularity "as consumers demand multiple channels to obtain the goods and services they desire (Pride and Ferrell 444). Gap must continue to take advantage of this growing trend in order to keep up with competitors. Forrester Research projects that online retail sales in the United States will climb to nearly $250 billion by 2014 (Pride and Ferrell 444). In 2013, around 12% of Gaps business

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was online (Gap Builds). Gap also uses direct marketing through email promotions which customers are able to sign up for. By signing up they will be the first to receive information about the latest style, new arrivals, special deals, upcoming collections, events, trends, and exclusive promotions. Promoting their brand over the Internet can be very beneficial for the company. Other than the use of banner advertisements on Facebook, the majority of the brand is promoted on their official website. People are drawn to the website because they are able to shop from the different brands through one shopping cart. The website has been modified to better adapt to customers needs and wants. Their website consists of good quality pictures of the products so that the customers know what they will be purchasing since they are unable to physically touch the products. They also have a quick look tool, which is helpful to browse quickly through the different products without having to go to separate web pages. Customers can refine their options through size, color, price range, and style. Another important feature is that their shopping cart is visible on all pages and easy to access along with their search bar. However, a possible improvement would be to make the search bar larger since the search bar is one of the most important tools and when products are not clearly identified on the landing page then the most common reaction is to search for it (Booth). A website should be easy to navigate in order to give shoppers a quick and simple way to purchase products. Although, the website does a good job with a clear and organized navigation, customers still have to go through various clicks to reach certain products. The Gap website should try and reduce back button clicks which is repetitive and may cut off browser connections (Booth). Overall, the website has been doing well and has been successful in incorporating the Gap personality, advertisements, and social media without distracting from the products.

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Due to the popularity of social media Gap is using Facebook, Twitter, LinkedIn, Pinterest and Youtube. On Youtube Gap has 2,636 subscribes that have access to over 150 commercials over the past several years. Currently they have 4.3 million likes on Facebook and 186,673 followers on Twitter. Through sites like Facebook and Twitter, Gap can directly reach and respond to its customers by posting pictures of their products, promoting events, and contests. Approximately, 80 percent of users prefer to connect with brands on Facebook, therefore one million websites have integrated with Facebook (Inforgraphic). This is why Gap has emphasized the use of Facebook and is currently posting advertisements and pictures from past years every Friday. This is a way Gap can remind customers of their core values of an AllAmerican brand. They also allow their customers a chance to feature their pictures every week on Facebook. Through these sites Gap can directly reach and understand what customers want. Through their Be Your Own T campaign, Gap partnered with Threadless to create a digital experience for their customers through T-It-Yourself and Styld.by. Through T-It Yourself, Gap helps customers upcycle their old T-shirts into fun, fashionable accessories in six steps or less (Gap Launches). Both could be shared through Facebook, Twitter, Instagram and Pinterest (Gap Launches). In Times Square, people could even interact with the billboard by tweeting a picture of themselves with the hashtag #beyourownt and Gap would take a keepsake photo of the users photo and tweet it back to them as well as publish it on Facebook (Gap Launches). Since Gap is targeting the millennial age bracket it is crucial for them to keep up with all social media trends. This age group has grown up in the digital age and it has become a part of their daily lives, so there is no better way to directly reach them. Through the use of social media Gap can also develop its brand recognition around the world. Shown below in Figure 16 are the number of subscribers for each brand on the Gap Inc. website on YouTube.

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Figure 16. Subscribers for Gap Inc. Brands on YouTube

Current Pricing While Gap stores continually offer customers high quality products at moderate prices, Gap Outlet stores offer Gap style at exceptional value (Gap Outlet. Tanger Outlets). According to Leslie Miller, the assistant customer manager at the Gap, babyGap, and GapKids, at Tempe Marketplace, Gap Outlet stores are a separate business entirely. The Gap Outlets are considered a separate brand owned by Gap Inc., much like Banana Republic or Old Navy. Originally, the Gap Outlets use to receive items from Gap stores that would not sell, and then sell them to customers at discount prices. However, Gap Outlet sales increased so much that they were able to become their own entity. Today, the products offered by Gap Outlets are styles of Gap, similar to the products in Gap stores, but are offered at discounted prices on a daily basis (Miller). After just having its first Gap Outlet store open in 1994, Gap Inc. explained that the Gap Outlet is the leading retailer in the outlet marketplace attracting and exciting customers with unexpected, versatile, trend-right looks at an unbelievable value (Gap Outlet. Gap Inc.). The Gap Outlet has everyday low prices on their assortment of styles from jeans, khakis, T70

shirts, and accessories, with discounts changing every week anywhere from 30-70 percent off (Gap Outlet. Tanger Outlets). Knowing this, it is obvious that the Gap brand has valueconscious customers, who are concerned about price and quality of a product, while the Gap Outlet has price-conscious customers, who are striving to pay low prices (Pride and Ferrell 355). Figure 17, shown below, compares the prices of common product purchases between the Gap and Gap Outlet stores. Price Comparison: Product Jean Pants M Jean Pants W Khaki Pants M Khaki Pants W Plain Tee M Plain Tee W Shoes W Sandals M Sandals W The Gap $59.95 - $89.95 $59.95 - $69.95 $59.95 $44.95 - $49.95 $16.95 - $19.95 $14.95 - $22.95 $34.95 - $49.95 $14.95 - $19.95 $14.95 - $59.95 The Gap Outlets $44.99 - $69.99 $44.99 - $69.99 $34.99 $34.99 $6.99 - $7.99 $6.99 - $7.99 $7.99 $9.99 - $29.99 $9.99 - $29.99

Figure 17. Price Comparison Between The Gap and Gap Outlet Stores

Gap Inc. is a company that operates in two segments: stores and direct. Stores include the operations of the retail stores for Gap, Old Navy, and Banana Republic and direct includes the operations for Gap Inc.s online brands ("Gap Inc. (GPS)" Reuters). In early 2012, the Company had 3,263 store locations and today Gap Inc.s products are also available to customers online in over 90 countries through the Company-owned Websites ("Gap Inc. (GPS)" Reuters). Though the Gap sells its products both online and in stores, Leslie Miller explained that the prices for Gap products online vary independently of Gap stores. The Gap website is a completely separate section of business for the Gap, just like Gap Outlets, but the Gap website

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sells the same products that are sold at Gap stores (Miller). Gap stores and Gap online are not integrated with the same prices, yet Gap stores will honor any lower prices featured online. Occasionally, Gap stores will team up with the online Gap business and offer the same promotion, but for the most part, the businesses each hold their own separate deals and promos. Gap Inc. generates revenue by conducting business online as well as in stores. As crucial as it is for a company to generate revenue, companies also strive to maximize their profit while maximizing customers value. Making a profit is so important for a company because it enables them to grow, indicates whether they are succeeding or failing, and constitutes important feedback that can improve economic efficiency (Mann). According to the article titled, How To Make A Profit In Business, author Gessy Nixon recommends that companies keep in mind these key points when working to generate revenue and making a profit: 1) become the best in your business and know the true cost of your supplies, so that you do not pay more than you have to, 2) know your customers and fight to keep them, 3) manage your income streams, and 4) charge what the product is worth in order to see profits sooner (Nixon). Factors that affect pricing decisions are organizational and marketing objectives, pricing objectives, costs, other marketing mix variables, channel member expectations, customer interpretation and response, competition, and legal and regulatory issues (Pride and Ferrell 351). The Gap uses several pricing objectives when determining the prices for its products. Prices by Gap are based on the cost to produce the item, the value perceived by the customer, the amount customers are willing to pay for the item, and finally, the amount competitors are selling similar items for. The Gap brand needs to make sure to generate not only revenue with the products it sells, but a profit as well. Therefore, the price of a product must exceed the cost to produce it. The Gap must also be careful not to set a price for a product that exceeds the amount a customer

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values the product at or is willing to pay for it. A companys customers are never safe, which means they have to build and keep the consumer relationships current and purposeful (Nixon). Customers are the key to success, so a business must strive to keep the customer happy, satisfied, and distracted from other competing brands. To do this, the Gap must keep prices similar to competition if not lower, and product quality high in order to match its customers perceived value. If customers do not find value in Gaps products, or if they find higher value in Gaps competitors products, Gap could lose those customers and market share. Marketers should also set prices that are consistent with the organizations goals and mission. For example, a retailer trying to position itself as value-oriented may wish to set prices that are quite reasonable relative to the product quality (Pride and Ferrell 350). On the other hand, an organization that uses pricing to increase its market share would likely set the brands price below those of competing brands of similar quality to attract competitors customers and is a prime example of the Gap Outlets (Pride and Ferrell 351). According to the Retail Apparel Report entitled, The Gap, Inc. (GPS), from Reuters, the Gap, Inc. has also upheld that it has not been experiencing any cost pressures [and it] plans to continue promotional activity it has put in place over the past few quarters with more aggressive pricing coming during regular sales seasons or alongside steep competitor price cuts (Weekly Investment). Figure 18, shown below, illustrates Gaps prices in comparison to its top competitors prices for common products. General Price Comparisons: Product Jean Pants M Jean Pants W Khaki Pants M Khaki Pants W Plain Tee M Plain Tee W The Gap $59.95 89.95 $59.95 - $69.95 $59.95 $44.95 - $49.95 $16.95 - $19.95 $14.95 - $22.95 American Eagle Outfitters $39.95 - $49.95 $39.95 - $49.95 $39.95 ---$15.95 $15.95 Abercrombie & Fitch $59 - $88 $49 - $88 ------$20 - $25 $20 - $25 H&M $19.95 - $39.95 $9.95 - $39.95 $29.95 $24.95 $5.95 - $12.95 $5.95 - $12.95 73

Shoes M Shoes W Sandals M Sandals W

---$34.95 - $49.95 $14.95 - $19.95 $14.95 - $59.95

$24.95 - $120.00 29.95 - $225.00 $17.95 - $29.95 $24.95 - $89.95

------$14 - $48 $15 - $58

$12.95 - $49.95 $17.95 - $129 ---$5.95 - $24.95

Figure 18. Gap vs. Competitors Pricing Comparisons

Companies will often use temporary price reductions, such as sales, rebates, and special discounts when trying to raise cash quickly (Pride and Ferrell 351). Such strategies are referred to as price discrimination, bundling, and psychological pricing. Versioning pricing strategy, a second-degree of price discrimination, occurs when companies sell variations of a product or service at different prices to different groups of customers (Pricing Strategies). Usually companies aim to charge the maximum amount customers are willing to pay in order to maximize revenues, but it is difficult to know how much each person is willing to pay. Companies, therefore, create and design different versions of a product to better appeal to different types of customers, and each customer can choose the version that best fits them and best meets their needs (Pricing Strategies). Gap uses versioning pricing strategy, along with many others. On the Gap website, there are several variations of products. Many of which have different prices or features, allowing specific customers to decide which version best fits their style and at an amount they are willing to spend. For example, Gaps Slim Cropped Pants for women are offered in a variety of colors and patterns with all of them differing in price. Another example is Gaps Skinny Fit Jeans for men which also vary in price and are offered in different styles, such as the authentic, selvage authentic, and the super skinny. Businesses also distribute a physically identical product under different brand names, charging lower prices for the less known brand name. For example, the Gap sells its products with the Gap label at its own stores as well as under other labels at other retail stores (Pricing Strategies). In addition to price

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discrimination, the Gap has also been known to use bundling pricing. Investopedia defines bundling as a marketing strategy that joins products or services together in order to sell them as a single combined unit (Price Discrimination). For example, during the holiday season in 2002, Gap Inc. announced that its brands Gap and Old Navy had opened online shops in Amazon.coms apparel store. Amazon.com managed the site, but Gap Inc. allowed customers to bundle their Gap and Old Navy purchases with the sites other product offerings (Gap Inc. Announces Strategic). Also, on the Gap website, bundling is used to sell entire outfits for men, women, and children. A customer is able to pick a picture of a model in an attractive outfit and then purchase the bundle of clothes that creates the models entire outfit in the picture. The Gap brand also attracts the customers attention by using promotions such as buy one get one or specifically buy 2 or more get them for $5 each, when the items are normally more than $5 each. The pricing strategy known as psychological pricing, Gap tends to rely on the most, but is one that several businesses utilize. Psychological pricing uses the customer's emotional response to encourage sales and appeals to their emotions versus their rational side and makes them feel as if they are getting a deal (Frost). An example of psychological pricing is odd pricing. Odd pricing is ending the price with certain numbers to influence buyers perceptions of the price or product (Pride and Ferrell 380). For example this allows a business to price a product or service at $3.99 instead of $4, which customers then tend to associate that price closer to $3 instead of $4. Merely setting prices with the number nine at the end, whether it is $1.99 or $99.99, can make consumers feel they got a deal (Balik, Holmes, and Smith). Suggestions Utilize and incorporate CRM technology more Change advertising to better display the product and brand

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OVERALL RECOMMENDATIONS

Demographic Focus: Teenagers Based on our teams overall analysis, we feel that the Gap should allocate more of their efforts towards the teenage demographic of 12-18 year olds. Gaps main competitors Abercrombie & Fitch and American Eagle Outfitters cater to this market segment, and in order for the Gap to be competitive it must invest more advertising, money, and time into this market. Teenagers are one of the largest growing consumer bases, spending $208.7 billion dollars annually (Teenage). It would be a missed opportunity if Gap did not take advantage of this market segment. However, to be competitive in this age demographic, the Gap needs to implement a trendy emblem for its clothing to enhance brand recognition and loyalty. Teenagers identify with labels because it makes them feel apart of something, and is representative of who they are. American Eagle has the eagle and Abercrombie & Fitch the moose. We suggest adding an emblem of a seals silhouette or the date 1969 to the teenager product line. Both items associate with Gaps home roots; one is representative of San Francisco where it was founded and the other links to the opening year of the company. To accommodate to this market further, Gap should hire celebrities such as Taylor Swift, Selena Gomez, or Washington Nationals baseball player, Bruce Harper, to endorse their teenage inspired products. All three of these celebrities are well known amongst the teenage demographic and mesh well with the Gap brand image. While Abercrombie & Fitch and American Eagle Outfitters have provocative ads, the Gap brand would provide a wholesome image, one which parents would appreciate and approve of their child wearing. Even if the brand was not to focus on this specific demographic, and

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continue to market towards 18-34 year olds, we still suggest that the brand incorporate an emblem into their clothing. In a recent study by Brodeur Partner' Retail Relevance, it was shown that the 18-34 year olds (generation Y) desire to be associated with a brand name. Generation Y wants people to notice the company they are wearing and are proud to wear it (Koessler). Advertising Enhancements From studying and watching numerous Gap advertisements, we feel that they could be enhanced by emphasizing the product more, making the Gap logo more apparent, and creating an overall edgier feel. Currently, Gap TV commercials and print advertisements do not satisfy all steps of the AIDA model, and rarely leave the customer with a call to action to go and purchase the product being advertised. The SeaVees commercial described under the section, Diagnostic Advertising Profile, is an example of the direction we feel that Gap advertising should continue to follow. Not only is the advertisement engaging, but it emphasizes the Gaps classic brand image. With all of the philanthropic campaigns that Gap Inc. supports, cause-related marketing is an effective way for the company to create a unique and strong connection with consumers, while stressing a call to action. The Gap should advertise their philanthropic efforts not only through advertising, but apparel as well. This has proven to be effective as in 2006, Gap's (Red) Campaign which focused on fighting AIDS in Africa, was extremely successful. Generating after only one year more than $45 million to the Global Fund to finance programs that help women and children affected by HIV/AIDS (Gap Introduces). Philanthropic efforts and campaigns not only work towards a great cause, but can be very trendy, appeal to larger market segments, and reflect well on the brands image. The Michigan Daily reports, "businesses have found ways to practice philanthropy in ways that, through improving their image, actually promote profit" 77

(Clements). We believe the Gap should have a section in each store dedicated to their philanthropic efforts such as the P.A.C.E. program. This section will highlight Gaps efforts in being more socially and environmentally responsible. Clothing bins such as those used in the Recycle Your Blues campaign will be in the store at all times, and all products in this section will reflect and benefit their intended cause. Essentially, this section could become another product line for the Gap brand with T-shirts or jackets. Digital Strategies Gap currently utilizes Customer Relationship Management (CRM) practices, but not to its fullest potential. With the ability to tailor advertising and specific products to current and potential customers, the Gap would be able to reach a broader audience and cater to individual customers needs. This would all have a direct effect on brand recognition, loyalty, and customer service. First, the Gap must enhance their digital presence, especially, if they plan to target the teenage market. Our group agreed with new Gap CMO, Mr. Farbmans, latest decision to hire digital experts and community managers to beef up the brands online presence (Zmuda). A great example of what the Gap is currently doing to improve customer relations would be through their Facebook account. Not only does Facebook offer heightened audience engagement, but facilitates multiple ad views (Top). Facebook users visit the website not only to consume information, but also to create it, which results in a higher retention rate that improves ad visibility (Top). Currently, the Gap brands Facebook, has been posting old advertisements or products and asking their fans for feedback on what they see. Not only does this require userinteraction, but also helps increase customer loyalty through their social media. In addition, Facebook is a great platform to promote the Gaps newest products and campaigns as well as offer special promotions, which is very important to the Gaps cost conscious consumers. 78

Currently, the Gap has the least amount of likes on Facebook with 4,345,763 likes compared to its competitors Abercrombie & Fitch (7,574,971) and American Eagle Outfitters (8,715,691). If the Gap decides to focus on the teenage demographic this will be a crucial aspect to their success, and they will need to keep up with all social media trends. Since this age group has grown up in the digital age it has been embedded into all aspects of their daily lives. Therefore, there is a greater chance of directly reaching this demographic. A recent study found that roughly 90 percent of young people, 18-30, wake up every morning and check their phone and recent updates on their social media (Gorges). Gaps most current effort to make a presence in social media and digital space includes the appearance of their clothing on fashion site, Styld.by (Zmuda). Social media is one of the fastest growing and cost effective ways to market to the public, of which the Gap must advantage of.

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BIBLIOGRAPHY
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EXHIBITS

Figure 1. Gap Stock from 2008-2013

Strengths Geographically Dispersed Strong Brand Recognition/image Targeting Multiple Markets All American/Wholesome Image Strong ecommerce/Website Clothing allows for Flexibility P.A.C.E. Program Gap Outlet Customer Service Opportunity Growing Apparel Market Foreign Expansion Expansion in e-commerce Business Casual Eco Friendly Supply Chain Management Pre-teens & Teens (12-18) Market

Weaknesses Broad Target Market Products too Bland Product Line Mesh No labels to Create Belonging Wholesome Image and Pre-teens Dependence on Too Many Vendors Compete with Own Brands Lack of Advertisement Threats Legal/Political Problems Competitive Market Problems with Sweatshops Natural disasters/Power Shortages Pricing Pressure from competition Substitutes for Product/Brand Limited resources Changing Trends

Figure 2. Gap SWOT Analysis Chart

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Figure 3. Family Clothing Stores in the U.S. 2011

Figure 4. Global Apparel Retail 2009

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Figure 5. Clothing Store Market Composition 2010

Gap Inc. Brands: Top quality causal clothing at reasonable prices. Founded: 1969 Old Navy Fashionable, casual inexpensive clothing. Founded: 1994 Banana Republic Sophisticated expensive clothing and consists of an upscale image. Founded: 1978 Acquired by Gap Inc.: 1983 Piperlime Sells a variety of popular brand items with private label brands. Used to be only an online brand, until recently opening a physical store. Launched: 2006 Athleta Offers a product line of different womens sportswear. Gap Inc.s newest added brand. Founded: 1998 Acquired by Gap Inc.: 2008 A multi-brand specialty retailer in high fashion apparel for women. Bought by Gap Inc. in January of 2013. Founded: 1993 Acquired by Gap Inc.: 2008
Figure 6. Gap Inc. Brands

The Gap

Intermix

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Departments: Outerwear, Sweaters, One-Pieces, Polos, Bodysuits, Tops, Jeans, Pants, Shorts, Leggings, Skirts, Dresses, Swimwear, Active Wear, Shoes, Blankets, Sleepwear, Accessories GapKids Outerwear, Sweaters, Hoodies, Polos, Shirts, Blouses, Jeans, Pants, Crops, Shorts, Skirts, Dresses, Rompers, Active Wear, Shoes, Socks, Tights, Underwear, School Uniforms, Sleepwear, Accessories Gap (Men) Outerwear, Sweaters, Sweatshirts, Polos, Shirts, Blazers, Jeans, Pants, Shorts, Socks, Underwear, Sleepwear, Accessories Gap (Women) Outerwear, Sweaters, Sweatshirts, Shirts, Blouses, Blazers, Jeans, Pants, Shorts, Skirts, Dresses, Shoes, Accessories GapMaternity Outerwear, Sweaters, Shirts, Nursing Tops, Pants, Skirts, Dresses, Sleepwear, Nursing Bras, Panties, Accessories, GapFit GapFit Hoodies, Jackets, Tops, Pants, Shorts, Socks, Sports Bras, Accessories GapBody Tops, Bottoms, Gowns, Bras, Panties, Swimwear, Sleepwear, Robes Colors: All Brand Versions Sizes: babyGap GapKids Gap (Men) Based on weight and age of baby (Ages 0-5 years) Plus, Husky, Slim, XS, S, M, L, XL, XXL (Ages 4-14+) All different colors and shades; prime colors; pastel colors (red, orange, yellow, green, blue, purple, pink, white, brown, gray, black, and multicolored) babyGap

XXS, XS, S, M, L, XL, XXL (based on waist and length) Big and Tall: up to 44W pants; shirts and underwear up to XXL-XXXL Gap (Women) Tops: XXS, XS, S, M, L, XL, XXL Bottoms: 00-20 (based on waist and length) Petite: for women 54 and under: sizes 00P-14P and XSP-LP Tall: for women 59 and over: sizes 4T-16T and ST-XLT GapMaternity Tops: XS, S, M, L, XL, XXL Bottoms: 0-18 GapFit Women Tops and Bottoms: XS, S, M, L, XL, XXL GapBody Women Tops and Bottoms: XS, S, M, L, XL, XXL

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Styles: babyGap GapKids Gap (Men) None Specified None Specified Classic, Tailored, Vintage, Casual, Dress, Versatile

Gap (Women) Classic, Tailored, Vintage, Casual, Dress, Versatile GapMaternity None Specified GapFit GapBody Collections: babyGap GapKids Gap (Men) Road Trip, Neon Crush, Little Aquarium, Sugar Rush, Peter Rabbit, Baby Love, First Favorites, Spring Break, Venice Beach, Pretty Cool Things, Party Outfits, Swim Shop, Junk Food, Desert Palm, Daisy Chain Spring Break, Party Outfits, Swim Shop, Chambray None Specified None Specified

Denim Washes, Polished Style, Gap Loves, Customer Favorites, Online Exclusives Gap (Women) Gap Loves, The NEW Skimmer, Tee Shop, We Love Outfits, Desk to Dinner, Trends We Love GapMaternity We Love Outfits, Babymoon Essentials, Starter Styles, Work Essentials, Pure Body, Online Exclusives, and Customer Top Picks GapFit Run, Train, Cool Down, Motion Tops, Breathe Tops, Customer Favorites GapBody Fabrics: babyGap GapKids Gap (Men) Gap (Women) Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted Destination: Swim, Pure Body, Candy-Colored Panties, We Love Lingerie, and Customer Favorites

GapMaternity Cotton, Polyester, Nylon, Spandex, Organic Materials, Cashmere, Knitted GapFit Cotton, Polyester, Nylon, Spandex GapBody Cotton, Polyester, Nylon, Spandex

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Patterns: Solids, Graphics, Gap Logo, Stripes, Animation, Super Heroes, Plaid, Stars, Polka Dots, Small Animal Emblems GapKids Solids, Graphics, Gap Logo, Stripes, Animation, Super Heroes, Plaid, Stars, Polka Dots Gap (Men) Solids, Graphics, Gap Logo, Stripes, Plaid Gap (Women) Solids, Prints, Graphics, Gap Logo, Stripes, Plaid, Floral, Etc. GapMaternity Solids, Prints, Graphics, Gap Logo, Stripes, Plaid, Floral, Etc. GapFit Solids, Gap Logo, Stripes GapBody Solids, Graphics, Gap Logo, Stripes, Polka Dots
Figure 7. Gap Department Descriptions

babyGap

Figure 8. Boston Consulting Group Matrix for the Gap

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Figure 9. Brand Value vs. Price Graph

Figure 10. Technology Erodes Brand Loyalty

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Figure 11. 2009-2011 Factory Ratings Comparison

Figure 12. 2011 Factory Ratings by Geographic Region

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Figure 12: Gap Inc. Marketing History

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Figure 13. AIDA Model

Figure 14. SeaVees X Shoes

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Figure 15. Super Tuesday In-Store Advertisement

Figure 16. Subscribers for Gap Inc. Brands on YouTube

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Price Comparison: Product Jean Pants M Jean Pants W Khaki Pants M Khaki Pants W Plain Tee M Plain Tee W Shoes W Sandals M Sandals W The Gap $59.95 - $89.95 $59.95 - $69.95 $59.95 $44.95 - $49.95 $16.95 - $19.95 $14.95 - $22.95 $34.95 - $49.95 $14.95 - $19.95 $14.95 - $59.95 The Gap Outlets $44.99 - $69.99 $44.99 - $69.99 $34.99 $34.99 $6.99 - $7.99 $6.99 - $7.99 $7.99 $9.99 - $29.99 $9.99 - $29.99

Figure 17. Price Comparison Between The Gap and Gap Outlet Stores

General Price Comparisons: Product Jean Pants M Jean Pants W Khaki Pants M Khaki Pants W Plain Tee M Plain Tee W Shoes M Shoes W Sandals M Sandals W The Gap $59.95 89.95 $59.95 - $69.95 $59.95 $44.95 - $49.95 $16.95 - $19.95 $14.95 - $22.95 ---$34.95 - $49.95 $14.95 - $19.95 $14.95 - $59.95 American Eagle Outfitters $39.95 - $49.95 $39.95 - $49.95 $39.95 ---$15.95 $15.95 $24.95 - $120.00 29.95 - $225.00 $17.95 - $29.95 $24.95 - $89.95 Abercrombie & Fitch $59 - $88 $49 - $88 ------$20 - $25 $20 - $25 ------$14 - $48 $15 - $58 H&M $19.95 - $39.95 $9.95 - $39.95 $29.95 $24.95 $5.95 - $12.95 $5.95 - $12.95 $12.95 - $49.95 $17.95 - $129 ---$5.95 - $24.95

Figure 18. Gap vs. Competitors Pricing Comparisons

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