HI6006 Competitive Strategy Editing Service
Delivery in day(s): 4
The project has been done to analyze the competitive marketing strategies of Tearcy and Wiersema as well as to analyze Porter’s Five Forces to analyze the industry structure. The competitive marketing structures have been classified into three divisions. They are product leadership, operational excellence and customer intimacy. In the assignment, study has been done on the importance of these strategies, how they are helpful to the organization and which organization uses which form of strategy and how it has helped them. The second task of the assignment tells about the Porter structure which is used by companies to assess competition in an industry before entering it. It gives the required knowledge about the market and the competitors.
Authors Michael Treacy and Fred Wiersma came up with three standard aggressive schemes or strategies required by the companies for accomplishing ibn the market place. They termed it as value disciplines. These are:
1. Customer intimacy
2. Operational excellence
3. Product leadership
They explained these three disciplines in their book, The Discipline of Market Leaders published in the year 1997. The authors suggest that the companies must opt and attain market headship in any one of the three disciplines and should be able to execute to a certain level in the other two disciplines.
This strategy concentrates on contributing an exceptional variety of consumer services which give permit for the customization of service and personalization of products to accomplish divergent consumer requirements. Many a times the companies who practise this strategy combine the services and commodities into a resolution premeditated especially for an individual consumer (Johanson and Mattsson, 2015). A triumphant resolution needs vendors to acquire profound consumer information along with perception into the consumer’s business procedures. Though the resolutions are generally an expensive option and not that inventive either, they are still considered good enough. Arrangement of commodity development, industrializing, managerial functions and supervisory spotlight on the requirements of the individual consumer can assist in achieving true customer intimacy (Weinman, 2015).
Customer oriented companies are more inclined towards a decentralized organization as it gives them the permit to become skilled and modify rapidly as per the needs of the consumers (Obeidat, et al.2015, p.337). Companies of these categories generally keep a whole bionetwork of associates for real production and for the deliverance of products and services to their consumers (Morris et al.2015, p.28). The companies are prepared to spend for building customer faithfulness in the long term. The workforces in these companies are ready to do anything irrespective of the preliminary costs to ensure that the consumer gets what they desire. Many companies pursue customer intimacy strategy. Some of them are Nordstrom, IBM, Home Depot, Lexus, Ciba-Geigy in the pharmaceuticals, Virgin Atlantic, Amazon.com, Staples in office-supply retailing, Kraft and Frito-Lay in consumer packaged commodities (Rothaermel, 2015).
The account keepers of Home Depot spend whatsoever time needed to analyze which commodity will decipher their home repairing issues (KAMANN and Van Nieulande, 2010, p.70). The outlet employees of the company are in no rush. For them ensuring that the consumer gets the correct good is their main concern, irrespective of the fact whether the price is $59 or 59 cents. Home Depot specializes in providing individual service. The account keepers do not interact with the consumers just for the sake of being nice rather they do it because of the strategy followed by the company (Mikalef, et al. 2015, p.650). The strategy of the business believes not only in selling home-repair and up gradation items economically but also believes in consumer’s requirement for information and service. The consumer’s who only prioritize price fall outside Home Depots main market.
This strategy focuses on achieving control over the cost. The centre of attention is on computerizing industrialized procedures so as to reorganize functions and to decrease the cost (Slocum, et al.2014, p.80).It provides itself with harmonized construction, high amount of capacity and business positioned, hence very rare requirement of discrimination prevails. A market where the consumers give more emphasis on price over preferences, this type of strategy can be applied. It is generally found in case of established, goods based market where control over the cost facilitates constant development. The leaders in this area are robustly federal and have powerful managerial regulation and a uniform regulatory function (Donate and de Pablo, 2015, p.366). The assessment of vital procedures and standard costs encompass a fundamental division of the functions of the companies who persistently search for methods to rationalize their procedures so that errors can be eliminated. A business model where volume plays the key role, regulations like TQM, SCM, and Six Sigma are refined. Examples of companies practicing this strategy are IKEA, Southwest Airlines, Mc Donald’s, Dell, American Airlines, Federal Express, Easy Jet, Wal-Mart and Ryan Air.
Dell Computer is an example of a company which has decided on having operational excellence. It has proved to the PC purchasers that in order to buy personal computers with ease and without much investment; they need not give up on quality or high-tech technology. During college days, in the mid 1980s, college student Michael Dell prospected to surpass both IBM and Compaq when Compaq focused on making his PCs cheaper than those of IBM. Dell’s strategy was to focus on the delivery system rather than the product. From a dorm room in Austin, Texas, Dell pictured a drastically different and extremely resourceful functioning model to excel in operations. The strategy followed by Compaq of selling PCs with the help of traders and merchants to beginners could be surpassed with the help of a model (Engelen, et al.2015, p.1078). This model consisted of removing traders and from the circulation procedure as a whole. Dell has been successful in denigrating Compaq and other PC producers with respect to price and has been able to come with premium products and services. The reason behind this is it sold directly to consumers, believed in constructing an order over building an inventory and generated a well-organized, tremendously economical custom (Engelen, et al.2015 p.1181). Where Dell has shown an increase in the level of revenue to $1.7 billion in less than ten years, Compaq has been compelled to slack down its fees and expenses.
This is the third discipline used by companies. Here the main goal is to construct customs which consistently bring better quality products to the market. The product leaders of the companies pursuing this discipline accomplish best prices for their products in the market, the reason being the knowledge they provide to their consumers (Tóth, et al.2015, p.730). The companies pursuing this discipline are required to alter themselves in three ways. First of all the leaders have to be innovative. They should bear qualities which enable them to identify and accept ideas which derive outside the company. The second thing to be done by them is using their ideas and concepts in order to generate profit. For this, all of the production and management activities have to be contrived for haste.
Last but not the least and the most significant one, the leaders of the product should persistently follow fresh solutions for the issues which have been recently solved by their product or service (Kim and Ko, 2010, p.169).This discipline includes cooperation, advertising and promotion, management of investigation assortment, product management, and management of talent. The product leaders know that being innovative, collaborating and solving issues is essential for their success. Dependence on luxurious ability shows that the leaders look for influencing their skills across physical and managerial limitations. They do this by excelling regulations like cooperation and information management. This discipline strategy is adopted by companies dealing in consumer electronics, automotives, pharmaceuticals and fund management. Name of few companies pursuing this discipline are Bang & Olufsen, Fidelity Investments, BMW, Apple, Johnson & Johnson, Pfizer and Philips.
Johnson & Johnson is a company which incorporates all the three alterations required in this discipline. As the process goes, first it catches the attention of fresh ideas, but not by twist of fate it gets in good quality of ideas (Hamid and McGrath, 2015, p.4). Nurtures the ideas rapidly, and then tries to improvise them. The president of the Johnson & Johnson’s Vistakon, Inc., in the year 1983, who specialised in making contact lenses, came across Copenhagen ophthalmologist’s way of envisaging throwaway contact lens without incurring much cost (Benedettini, et al.2015, p.960).The company that time produced only $20 million every year in sales mainly from the sale of one product which was contact lens for people going through astigmatism. The way the president received his tip was unusual, from man employee whom he had never come across and who worked in a totally different supplementary in Denmark.
The employee had called him up and informed him about the innovative idea. Both the companies formed a management team to supervise the development of the product and came up with disposable lenses named Acuvue. J&J AND Vistakon incurred high production expenditure even before the sales started. The company took benefit during the decentralization phase (Jarzabkowski and Kaplan, 2015, p.540). It provided all the requirements like swiftness, elasticity, independent management without any influence on the raw materials or money related issues. The success also included direction from the marketing efforts made by eye care specialists as they were responsible for explaining the benefits of using the new lenses to the consumers. Though Vistakon captured a huge share in the market it continued its exploration on the lenses. Resources that could increase its lifeline or technologies that could make it become outdated. J&J works on liberalism towards fresh ideas. They form an environment which motivates the employees to come up with new ideas as well as pay attention to them and then give them a thought as well, regardless of the originality and from where it came. They also scrutinize the background in case of new products and services, so that they can find the fault in their plans. The company believes in evading officialdom as it feels it reduces the business of their ideas.
Threat of new Entrants- there are lot of hindrances which a company has to overcome in order to start a new retail chain. A company might be able to get into the industry but establishing itself is not an easy task. Small scale companies might be able to compete with large scale industries on the basis of better location or maybe convenience. Hence they may act as threat to large scale companies like Walmart, IKEA, and Tesco who are well established in the market. In case of IKEA, there are rare chances of threat due to its significant hold in the market.
Bargaining power of buyers- a single consumer has a very low bargaining power in the retail industry but a mass number of people can have a command over the company. For example in a big firm like Walmart, there is a large population of buyers. The large population have a power over the company while the group of diversified buyers do not hold that much of a command over the company (Mathooko and Ogutu, 2015, P.335). In order to retain their existing customer base market leaders have implemented attractive promotional strategies which reduce their risk. Therefore, implemented strategy is able to divert customers’ bargaining power in to expectation. Now every customers are attracted and influenced by the product quality, product variation and discounts percentages.
Bargaining power of suppliers- Earlier, retailers used to take advantage of the suppliers. The buyers have a moderate bargaining power due to size and specialisation of various retailers (Strand and Freeman, 2015, P.84). Individually suppliers have a low bargaining power in case of large scale companies like Sainsbury, Asda, and Aldi. In case of small retailing companies, suppliers have a greater power as small industries are less planned. A large retailer like Tesco can have huge influence on a small supplier. It can either make the company get a stand in the market or totally smash its hold in the market. in order to manage bargaining power of suppliers, retail organizations have signed long term contract with suppliers so that the suppliers are no able to bargain for long term.
Threat of substitute products- retailers do not specialise in a specific type of product or service. Rather they are known for dealing in a broad variety of goods and services. This basically means that same product can be found in multiple stores or same offer can be available in two or more different retail stores (Singla and Durga, 2015, P.90). A retail store that not only provides closely related or substitute products but also differentiated products has an advantage over other retail stores. A large scale retail store like Walmart and Sainsbury provide goods which have very substitutes. External forces of goods with low variety of substitutes cause trouble for the consumers as they cannot easily shift away from the products and services being provided by these companies. All these depend on the retailers planned schemes and strategies.
Intensity of competitive rivalry- there is strong rivalry competition in a retail industry. Different companies working on a different scale are found in this industry. Equality in scale of the market and the control of the leading retailers who are influencing in boosting the market share can increase the rivalry (Johanson and Mattsson, 2015). Small scale retailers getting destructed due to amalgamation agreements, high rate of expenditure or through acquirement keep happening in the industry. A large scale company face huge competition. It should remain belligerent and ready for action in order to sustain its position in the industry. It should keep up with its pace.
Let us discuss how the rivalry, which is one of the forces among the Porter’s Five Forces Model affect the retail industry. Rivalry occurs among the companies whose size of market capitalization is close to each other. Rivalry in the retail industry occurs when either a company is feeling the pressure from another company while maintaining its market share or when a company is utilizing the scope of expansion in the market , other players feel threatened by the expanding company. The degree of rivalry depends upon the factors like number of industry players, possibility of product differentiation, cost of exit from the industry, importance of the players to the industry and the cost expansion in an industry. The rivalry in an industry gets intensified when the market has large number of players with little scope of expansion. For example the established players of UK grocery retail market, namely Tesco, Asda, Sainsbury’s, Morrisons are facing high competitions among themselves. As these companies are not getting enough consumers and therefore these companies have very little scope of expansion within the industry. These established players are losing their customers as more and more customers are buying products from convenient stores and small retail shops that are offering huge discounts .The big four retailers of the UK grocery market are also facing a fierce competition as the German grocery retailer “Aldi” and “Lidl” have entered in to the UK Market. By September 2014 the market share owned by Tesco, Asda, Sainsbury’s, Morrison’s were 28.2%, 16.7%, 16.2%, 10.7%. Due to the brutal competition of the retail grocery segment, the market share of Tesco and Morrison’s declined by 1.4% and the market share of Asda declined by 2.9% in terms of product sales(Johanson and Mattsson, 2015). The UK grocery retail giants also lost their market to the increased online sales. German grocery retailer “Aldi” and “Lidl” managed to grab a significant 17.3% and 16% share of uk grocery retail market by using the strategy of giving discounts to the “little-but-often shoppers”stores (Singla and Durga, 2015, P.90). Besides intra-industry rivalry is also increasing the competition of the UK grocery retail industry.
Let us focus on the degree of competition in other segments of the retail industry other than grocery. Let us the case of “IKEA” which is a player of the furniture retail industry. The company is only doing furniture business. As a result the company has become very focused in to its business. The company has managed to achieve a turnover of 24.7bn euros in 2012, though there are many prominent players in this segment(Strand and Freeman, 2015, P.83). Some of the prominent players of this segment are “Walmart”, “Toys R Us”, “Natuzzi”, “Krenov” etc. IKEA managed to earn a turnover of 3 billion from UK retail furniture market by reducing the price of the home furnishing products and by introducing another 800 products to it’s product range. The company took this strategy for surviving in the fiercely competitive .furniture retail sagement of UK that is also characterized by sluggishness.
Navigating the Model Development: Before, During and After
Before the procedure begins, during it and after it ends, a logical frame of mind is to be maintained. Points to be kept in mind are:
1. Identifying the aims of the objectives and the probable benefits from it.
2. Understanding the range of the investigation and who the budding beneficiaries are.
3. Allow open and truthful brainstorming conferences.
1. Focusing on the future.
2. Focus on improvement, not in the past events.
3. Study positives and negatives
4. Be open to innovative ideas and potentials.
1. Discovering how learnt lessons can be used in the future.
2. File positives and negatives and recognize the best.
3. Comprehend whether the assessment had the required effect.
4. Track on execution tactics.
5. Record information from the investigation for future usage.
EXAMPLES – IKEA
IKEA is a Swedish company dealing in furnishings and home accessories. Its furniture is contemporary and complete to be accumulated. It was the largest vendor of furniture in the world in the year 2008. Apart from its unsophisticated furniture design and environment friendly solutions, the company is known for focusing functioning facts, productivity, development of new product and managing costs. Porter’s theory helped the company in maintaining low costs. It has around 349 stores in 43 countries (ikea.com, 2017).
Porter’s Five Forces Analysis for IKEA
Companies like Ashley Furniture Home Stores, Home Depot give IKEA a tough competition in the discount furniture market. Despite of this IKEA has been successful in creating a distinguished status in the universal market and continues to be the pioneer.
Threat of new Entrants
Low level of risk involved from a new entry in the market. The reason being the required specialisation is tough to imitate with soaring monetary investments. The market is already drenched with the old companies, leaving no lure to compete with
Threat of Substitutes
It is doubtful that the target market of IKEA would move to a higher level of furnishing, hence rare case of alternative risks involved. Very few substitutes present the variety given by IKEA.
Bargaining Power of Buyers
Buyers have power in the industry due to the huge competition. IKEA’s USP are its cut-throat prices. The consumers can always switch over in case of increase in prices. Loyalty might prevent them but switching wont as hardly any expenses is involved in it.
Bargaining Power of Suppliers
IKEA has many suppliers around the globe; hence its traders do not get ample negotiating power. Many factories have the required specialisation needed for teaming up with IKEA. In spite of this the company believes in maintaining relationships with suppliers where both benefit.
The two assignments provide a detail about the industry and the market. It talks about the strategies and the market schemes to be implemented and the structure of different industries. The steps to be taken by an industry while entering a new market. The different strategies used by different companies like Dell, Johnson & Johnson, IKEA, Home Depot use. How IKEA uses porter strategy to hold its importance in the market and makes it difficult for other industries to enter. The way Dell believes in operational excellence, Johnson & Johnson in product excellence and Home Depot in customer intimacy.
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