I. Situation Analysis
Paez is a summer casual footwear company founded in Argentina and headquartered in Barcelona. The company manufactures a variety of alpargata shoes that are sold mainly through its wholesalers and distributors around the world. The company is seeking to reposition itself to compete against the well established first-mover in the market, TOMS.
Based on the analysis, one of the biggest strengths of Paez is deep and strong Argentinian culture roots, social cause that company lives by, which help integrate people into the labor system through education and entrepreneurship. One of the main weaknesses of Paez is limited alpargata shoe product line, and too many brand associations.
—Deep and strong Argentine cultural roots.
—Responsible to the local society, entrepreneurship and education.
—Toehold in Europe and Argentina markets.
—Paez is less-known and easier to reposition.
—Limited capital, human and sales resources.
—Product line is limited to alpargata shoes.
—Too many brand associations.
—Rely heavily on wholesale partners.
—Women’s footwear market favors feel and aesthetics than brand names.
—Global consumers stock a wide variety of shoes to reflect their freedom, desire and individuality.
—TOMS is criticized as “monetizing white guilt” and “hurting Argentine communities.”
—TOMS could drive Paez out of the Europe and Argentina markets with its investments and resources.
—Distribution through wholesalers hinders direct study of customer demands and needs.
—Inflation cost and political factors can be major player for successful penetration into different markets.
Based on the SWOT analysis, we identify three key issues that Paez has to address in order to keep growing in the competitive summer casual shoe market:
—Paez can only focus on optimizing its distribution channels, product lines or brand positioning one at a time with limited resources.
—Paez needs to build its brand culture to asymmetrically compete with industry Goliath–TOMS in the long run.
—Paez doesn’t have a coherent positioning strategy in place.
II. Strategies and Evaluation
A solid brand positioning strategy is much needed before other decisions about geography, distribution, and product line can be made. There are several alternatives that Paez could take base on the information provided in the case and our analysis. The criteria that we use to evaluate these positioning strategies are the 3Cs model proposed by Japanese organizational theorist Kenichi Ohmae.
The 3Cs Model
The 3Cs model provides a framework to examine each positioning strategy comprehensively with regard to customer, company and competitor. This model enables us to discern strategies with major flaws, which emphasize only on one C while overlooking the other two Cs. Lopsided strategies are especially dangerous for Paez as a small company, since it has no advantages on capital and sales resources to spare.
The optimal strategy should provide value propositions that truly meet the customers’ needs and help them with their jobs-to-be-done.
The optimal strategy should speak to the customers with meaningful narratives and help them “achieve values they hold to be important.”
The optimal strategy should leverage resources and culture capital within Paez’s inventory along with evidentiary support.
The optimal strategy shouldn’t be too far-fetched from the current positioning. Paez is limited to resources and cannot overhaul its brand image and start from scratch.
The optimal strategy should have a higher ROI. It should allow Paez to capture more market share with manageable costs.
The optimal strategy should be aligned with Paez’s current operations and practices.
The optimal strategy should stress Paez’s point of difference to set it apart from other competitors.
The optimal strategy should leverage Paez’s strengths so that it is not easy for competitors to replicate or counter.
The optimal strategy should also benefit building Paez’s brand culture in the long term, since the competition from TOMS and other competitors will not end soon.
Strategies and Evaluation
Here we examine the alternatives provided in the case and proposed by us with the 3Cs model. The recommended positioning strategy will be discussed in detail in Party III. Recommended Strategy.
Authentic Argentina Alpargata
Since TOMS was founded in the U.S. and its products are manufactured in China with ripped-off Argentine flag as its logo, Paez could position itself as the authentic, legitimate and true Argentine alpargata leveraging its deep roots in Argentina culture, tradition, craftsmanship and history.
This strategy is the optimal strategy. See Party III. Recommended Strategy.
Fashion at a Bargain Price
Focus: fashion, design, price.
This is a fast-follower strategy. It focuses on providing customers shoes with similar designs as TOMS but lower prices in order to capture the lower end of the market.
This strategy is not optimal as it is not defensible for Paez to compete on low prices and low margins with TOMS in the long run.
Focus: desired marginality, brand community.
This positioning strategy leverages Paez’s lack of resources as opposed to TOMS’ affluence in capital and corporate greed to speak to the Millennial and Baby Boomer consumers who stand in opposition to big corporations. This strategy provides desired marginality to form brand loyalty through opposition of TOMS.
This strategy is not optimal by itself, since it works more effectively in the U.S. market.
An Argentine Lifestyle Brand
Cool, confident, comfortable, playful and laid back, this positioning strategy aims to fusion function and fashion together, and inject vibrant Latin American vibes into customers’ lives through the Argentina lifestyle.
This strategy is optimal and should be used with other strategies together. It leverages the culture capital Paez already has as an Argentina-founded company and resonates with the fun- and individuality-seeking customers.
Brand for Social Good
Focus: fair trade, social responsibility, social political expression.
This positioning strategy emphasizes “offering a truly great product to our customers and helping all of our Paez team members realize their personal dreams and goals.” Fair trade, fair labor practices, education, minimal impact on environment are what Paez represents and stands for.
This strategy is not optimal. It is not distinctive and defensible for Paez. Although being criticized as monetizing “white-guilt,” TOMS already has various known programs to support social good. It would be costly for Paez to keep up with TOMS’ well-funded and well marketed one to one simple social cause. On the hand, it would be much easier for TOMS to keep up with whatever new program Paez launches with its financial and marketing resources. As a second mover, to compete on points of parity with TOMS, is very challenging.
From Customers For Customers
Focus: customer co-creation, crowdsourcing, creativity.
Paez already has the “Paez Collaborators” initiative in place to bring design value from talents to the brand, but currently it is limited to famous designers and big brands. Paez could leverage its highly loyal customers (20%-30% recurring) to build a Paez community and crowdsource great product ideas to transform these customers into collaborators.
This strategy is not optimal. It is not favorable. For example, the U.S. market, since 60% of the growth are from women who care less about brand names, building a sticky brand community entails huge costs and little result.
III. Recommended Strategy
The best positioning strategy that we recommend for Paez is the combination of authentic Argentina alpargata and Argentine lifestyle. We call the positioning Authentic Argentina. This strategy revolves around the company’s true and Argentine cultural heritage.
For 18-35, simple, genuine, social and eco-friendly women and men, Paez is the only brand among all summer casual footwear brands that offers simple, fun, and authentic Argentine alpargata shoes. Because Paez is a true Argentine company that cares about the culture, history, and local community that inspire the making of the alpargata shoes.
Currently, Paez offers shoes that are fashionable with good quality and fun twist at affordable price points. The Paez alpargata shoes are cool, confident, playful and creative. However, the main competitor TOMS, with highest market share also provides similar value offerings.
In this asymmetrical competition, Paez has two main advantages that TOMS can’t obtain: Paez is a true Argentine company, and alpargata shoes are from Argentina. Thus the optimal brand positioning strategy for Paez is to emphasize its authenticity and Argentina roots.
As Andrew Potter points out in the article “The Authenticity Hoax,” the quest for authenticity is the contemporary advertising, it is, the ultimate marketing position that can elevate a brand through storytelling. Being able to play the authenticity game is now a fundamental requirement of marketing, the standard against which all brand strategies are judged. Consumers are more knowledgeable and are willing to go along with brand that promises originality, integrity and value. This is especially true for the U.S. market, in which TOMS’ brand image is slowly peeling off; because consumers are realizing that the company is nothing but appropriation of Argentine culture.
Apart from being an authentic brand, Paez is also an Argentine brand. No other company can better represent the Argentine culture, lifestyle, heritage, tradition, history, and simple craftsmanship than Paez. As Quartz and Asp points out, coolness partially comes from rebellion. Customers who rebel against TOMS for its fake Argentina and switch to Paez’s true Argentina gain the ultimate coolness from the simple brand switching. As they become the cooler small group, they will pull more customers out of TOMS because it is no longer cool brand anymore.
Leveraging authenticity and coolness as form of distinction, this positioning strategy will create an advantageous market white space for Paez. As Heath and Potter pointed out taste, status and coolness are the central status hierarchy in contemporary urban society. Just as not everyone can be upper class and not everyone can have good taste, so not everyone can be cool. This isn't because some people are essentially cooler than others, it's because cool is, ultimately, a form of distinction. We recommend Paez execute this strategy through careful market selection and a product line extension.
IV. Markets and Products
Paez should enter the U.S. market with high level of investment. Although directly facing the market Goliath, TOMS, Paez has two main advantages to grab market share. The first advantage is the fragmented market nature. Customers in this region, especially female customers, care less about brand names but more about comfort and style of the products. Paez can win these customers over with its excellent shoe design and outstanding quality. The second advantage is the brand positioning. The Authentic Argentina positioning strategy attacks on TOMS achilles’ heel, appropriation of Argentine culture. The strategy speaks to the social and culturally aware customers in this region with a value proposition that proposes the better and unmediated Argentina cultural values. Paez won’t be able to overthrow TOMS overnight in the U.S. market, but will be able to gain a strong toehold.
Paez should keep defending its Europe and South America markets with its current level of investment. The company has already had a comparatively strong presence in these markets. According to Exhibit 9, South America is the most defensible region because of good distribution, low competition and Paez’s Argentine roots. Europe market is also crucial, since it contributes the main chunk of Paez’s revenues. Although the channels in the regions are not ideal (mostly through distributors and retailers), the situation can be improved through opening more flagship stores in strategic cities and supporting sales outside those cities with Paez’s improved e-commerce site.
Paez should seek to penetrate Asia and other markets with low level of investment. Customers in these markets have more diverse needs, culture backgrounds and tastes. It requires a lot more resources to serve these markets. Paez should pursue a local and region-specific strategy, which allows managers to customize their own messages in various competitive environments and at the same time lower the marketing and sales costs.
In order to support the Authentic Argentine positioning strategy, cultural value should be added to Paez’s current products, with regard to Paez’s limited resources. As a result, we suggest that Paez add only limited handmade clothing as a secondary product line to effectively manage the high product R&D and manufacturing costs. We also suggest that Paez keep working on its current alpargata shoes as the main revenue-generating product line. Paez should not rush into other product lines before it gains a firm toehold in the U.S. market or significant growth in the Europe and South America markets.
The limited, handmade, and Argentine culture inspired clothing, with rich and vibrant Latin America color palettes, functions as a necessary supplement to strengthen the perceptual connections for customers between Paez and Argentine culture and history. This is much like how Starbucks uses the expensive Evian bottled water to anchor customers’ expectation and justify its other products’ prices. The limited quantity of the clothing emphasizes on its scarcity and add the exclusive, empowering, and valuable feels to Paez’s current brand image. This is a small investment on a product line with potential big returns on the brand perception.
We also recommend that Paez prodive mate drinks in its other brand stores as the company has implemented in its flagship store. The mate won’t be a product for sale per se, but rather a service customers can enjoy in store and provide them the unique culture experiences to those not familiar with the Argentine culture. This adds a kind of coolness associated with Latin America culture that no other brands offer. The costs are low since Paez only have a handful of brand stores to implement this program. But when it is amplified through social media, even customers who can’t visit the stores will know how cool and distinct Paez is than its competitors. Paez is not just a summer casual footwear brand. It is that Argentine brand. Paez is not like TOMS. It doesn’t sell coffee, it serves mate.
V. Key Questions
Pando claims that “a weakness or strength of Paez is that it has too many values, while our competitors have just one core value.” Is this a weakness or a strength for a brand? Why?
This is a weakness for a brand. As seen in Exhibit 8 Paez markets on twenty different values and its real core value is getting lost in translation as authentic, fun and cool. A brand can only convey one or two very core values effectively to its customers. Too many core values undermine the power of the main values.
Paez core values is its rich culture and heritage that is similar to C.W.Dixey & Son eyewear who had strong heritage that was unique, special and unrivalled. Rich heritage is an ultimate business asset. However rich history in itself might not be enough to ensure success. Brand has to be more relevant to today’s buyers. Today’s buyers are loyal towards brand that are authentic. As Andrew Potter pointed out mark of authenticity is not that it reflects from objective truth in the world. Authenticity is which is true, how I feel at given moment or how things seems to me. As Potter states conspicuous authenticity is the successor form of Veblen conspicuous consumption. According to Veblen system of differentiation within class arises as wealth accumulates. But according to Potter things have changed overtime. People are now becoming less socially acceptable to show off status, they want to engage in practices and experiences and consumption hobbies that have social connections with coolness and rich heritage.
Which of the five brand positioning options should Paez pursue? Why? By which criteria are you evaluating each positioning option?
The criteria we use to evaluate the options are the 3Cs model. This model provides a holistic examination of the three main forces that affect a brand’s positioning strategy. The brand positioning strategy that we recommended is Authentic Argentine. See Part III. Recommended Strategy.
How else might Paez differentiate itself from its competitors? What other value propositions hold promise for the company? Where is the white space in this category?
Argentine lifestyle/Latin American culture is another promising value proposition for Paez. It represents the hot, lively, colorful, fun, contemporary and fashionable spirit that Paez can claim exclusively.
Paez can position itself very strategically in this market space because according to Farrar, Straus and Giroux consumers are trapped in psychological motive of emulation, copying the consumption patterns adoptions for status. Paez can respond through diversification by creating new social niche cool consumerism market distinction through rebellion. Rebellion against mainstreams that can dematerialize strands of Status Dilemma: hierarchical social structure and psychological motive which can diffuse competition. Paez has to position “cool” and “authentic” strategically as they are driven more by consumers demand and it undermines its credibility
How do company, consumer, and competitive factors influence your choice of positioning strategy?
For customers, the strategy has to be relevant, resonant and realistic. To counter competitors, the strategy has to be distinctive, defensible and durable. For the company, the strategy has to be feasible, favorable and faithful. See Criteria under Part III. Recommendation.
What challenges does Paez face as a second mover? How does TOMS’ value proposition impact Paez’s strategic choices?
TOMS have created out of the box profitable business model with a twist by tying simple social cause one for one campaign for shoes, eyewear line extension to save and restore eyesight for people in need, “Giving Partner” collaboration to provide safe water. TOMS biggest strength is they are highly customer centric, collaborative with loyal customer base. Today’s young adult looking for an affordable yet cool pair of shoes, would feel good that there purchase has actually helped a poor child get a much-needed shoe for free. The business model worked perfectly, because the cost of the free product was built into the price of the one that is sold, making a seemingly charitable effort that also contributes to profitability.
Paez as a second mover is facing tough competition from TOMS. Paez cannot compete with TOMS on social cause points of parity which is the key strength of TOMS. Paez has to differentiate on authenticity model. Authentic consumption needs to appear useful and socially beneficial. It has to have the veneer of being virtuous. As Potter stated “In order to be successful, the signs of conspicuous display need to portray themselves as at least superficially useful or socially beneficial. That is, it needs to masquerade as something other than what it really is, which is status-seeking”. Paez can communicate this through brand storytelling on how Paez values and mission is connected to Argentina roots, and social mission to advocate entrepreneurship and education. Paez lives by this values by integrating people into labor system through education. Which in turn will create sustainable infrastructure for future generations to come.
How does your positioning decision impact Paez’s go-to-market strategy and resource investments? Where should the company place its bets: on growing its own network of flagship stores, on expanding its retail footprint through wholesaling or franchising, or on e-commerce? Which regions of the world and specific countries should Paez tackle next? Why?
Paez should keep defending its Europe and Asia markets while striving to enter the U.S. market with the Authentic Argentine Paez strategy. To archie this, Paez need to grow its own network of flagship stores and to build on e-commerce. See Markets under Part IV. Markets and Products.
How does your positioning decision impact Paez’s product strategy? Should the company expand its line through product and brand extensions? If so, which types of extensions are most likely to produce significant sales growth and build brand equity?
Based on our recommended brand positioning strategy, with shoes still being the focus, Paez should launch a secondary clothing line with limited, Argentina-style products to enhance and complement the cultural value of the brand. In-store mate drinks should also be provided as an in-store service to bring the Argentina lifestyle to the brand. See Product Strategy under Part IV. Markets and Products.