US Marketing and Advertising

Introduction 

Management believes customers’ confidence in the retailer and store brand name recognition are important factors in determining buying decisions in the specialty jewelry sector because the majority of merchandise is unbranded. Therefore the US division continues to strengthen and promote its reputation by aiming to deliver superior customer service and build name recognition. The marketing channels used include television, radio, print, catalog, direct mail, telephone marketing, point of sale signage, in-store displays and the internet. In addition, promotional activity is also undertaken. Marketing activities are carefully tested and their success monitored by methods such as market research.

While marketing activities are undertaken throughout the year, the level of activity is concentrated at periods when customers are expected to be most receptive to marketing messages, which is before Christmas, Valentine’s Day and Mother’s Day. A significant majority of the marketing expenditure is on national television advertising and its cost is leveraged over time as the number of stores increases.

Statistical and technology-based systems are employed to support a customer marketing program that uses a proprietary database of over 25 million names to strengthen the relationship with customers through mail, telephone
and email communications. The program targets current customers with special savings and merchandise offers during key trading periods. In addition, invitations to special in-store promotional events are extended throughout the year.

Historically, generic marketing activity undertaken by De Beers in the US to promote diamonds and diamond jewelry designs was important in influencing the size of the total jewelry market and the popularity of particular styles of jewelry. With the significant reduction by De Beers of its promotional expenditure on diamonds and diamond jewelry, management believes that marketing carried out by specialty jewelry retailers will become more important. Given the size of the marketing budgets for Kay and Jared, management believes this may increase the US division’s competitive marketing advantage. The US division’s five year record of gross advertising spend is given below:

(1) 53 week year

To reflect lower anticipated sales levels, marketing expenditure was concentrated on the most productive channels and brands in fiscal 2009. As a result of the unexpected sharp decline in fourth quarter sales, the ratio of gross advertising spend to sales during fiscal 2009 was again above planned levels at 7.4% (fiscal 2008: 7.5%). Dollar gross marketing expenditure decreased by 7.6% to $188.4 million (fiscal 2008: $204.0 million). Marketing efforts were focused on national television advertising for Kay and Jared, resulting in their ‘share of voice’ growing. In addition, the promotional cadence was increased, particularly during the fourth quarter. In the third quarter an e-commerce capability was added to the Jared website.

As part of a meaningful cost reduction program in fiscal 2010, expenditure on marketing is planned to be reduced further. While the focus will continue to be on supporting both the Kay and Jared brands on national television, the expenditure on Kay will be reduced while that of Jared is expected to be broadly maintained. This reflects Kay’s well established status as an industry leading brand, whereas Jared’s brand awareness has greater potential to grow further. Radio advertising will be reduced.