Retail Marketing
Magic Solutions
RetailLecture5StrategicAnalysis11122018.pptxLecturer 5 Retail Strategy 1: Strategic Position Analysis
NBS-7030B
Retail Marketing & Management
Professor Ratula Chakraborty
Director MSc Programmes
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Lecture Outline
Situation Analysis
Macro-Environment Analysis
Industry Analysis
Competitive Position Analysis
Retail Positioning Strategies
Case Study: Primark & the market for cheap fashion
Purpose: to show the techniques for determining the strategic position of a retailer in its business environment to help identify strategic opportunities and threats facing the retailer
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1. Situation Analysis
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How well is the retailer positioned in its business environment to achieve superior performance?
Analyse forces impacting on profitability at 3 levels:
Macro-environment – PESTEL analysis
Industry environment – Porter’s Five Forces and industry life cycle
Competitive position – strategic groups and market segment analysis
Identify strategic positioning opportunities and measures to counter threats in the business environment
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Situation Analysis (cont.)
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Layers of the Business Environment
Environmental influences can be thought of as layers around an organisation:
outer layer making up the macro-environment
the middle layer making up the industry or sector
the inner layer strategic groups and market segments
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2. Macro-Environmental Analysis
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The PESTEL framework categorises environmental influences into six main types:
political economic
social technological
environmental legal
Designed to provide a comprehensive list of broad macro influences on the firm and its industry
Used to identify opportunities and threats in the broad business environment
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Macro-Environmental Analysis
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Political Factors: e.g. Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU)
Economic Factors: e.g. business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends
Socio-cultural Factors: e.g. population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion
Technological Factors: e.g. new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D
Environmental (‘Green’) Factors: e.g. environmental protection regulations, energy consumption, global warming, waste disposal and re-cycling
Legal Factors: For example, consumer protection laws, competition laws, employment laws, licensing laws, intellectual property rights (IPR) laws
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Macro-Environmental Analysis
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Using PESTEL Analysis
Apply selectively –identify specific factors which impact on the industry, market and organisation in question
Identify factors which are important currently but also consider which will become more important in the next few years
Use data to support the points and analyse trends using up to date information
Identify opportunities and threats – the main point of the exercise!
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Questions for Discussion #1
What are the main macro-environmental factors affecting the retail industry at the present time?
Which macro-environmental factors do you expect to become more important for retailing over the next five years?
Why are some retail sectors that sell “big ticket items” (like furniture, carpets, electrical appliances) suffering more at present than other retail sectors that sell “everyday goods” (like groceries, medicines, health & beauty products)?
What opportunities arise from the current difficult economic conditions? Which retailers are best placed to exploit these?
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3. Industry Analysis
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Industries and sectors can be analysed in terms of Porter’s five forces – barriers to entry, substitutes, buyer power, supplier power and rivalry
Together, the five forces determine industry or sector attractiveness
Industries and sectors are dynamic and the nature and intensity of competition can vary across the industry life cycle
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Industry Analysis (cont.)
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Porter’s Five Forces
The five forces that squeeze industry profits and make it harder for a firm to achieve high levels of profits
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Industry Analysis (cont.)
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Force 1 - The Threat of Entry & Barriers to Entry
The threat of entry is low when the barriers to entry are high and vice versa
The main barriers to entry are:
Economies of scale/high fixed costs
Experience and learning
Access to supply and distribution channels
Differentiation and market penetration costs
Government restrictions (e.g. licensing)
Entrants must also consider the expected retaliation from organisations already in the market
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Industry Analysis (cont.)
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Force 2 – Threat of Substitutes
Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process.
Customers will switch to alternatives (and thus the threat increases) if:
The price/performance ratio of the substitute is superior (e.g. store-based retailers maybe more expensive than internet retailers, but provide instant availability)
The substitute benefits from an innovation that improves customer satisfaction (e.g. broadband internet access has made it easy to use internet retailers)
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Industry Analysis (cont.)
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Force 3 – Bargaining Power of Buyers
If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits
Buyer power in retailing depends on the extent to which consumers are
price sensitive
fussy about value/quality
knowledgeable about the market
willing and able to shop around to find the best bargains
prepared to haggle and negotiate for discounts
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Industry Analysis (cont.)
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Force 4 – Bargaining Power of Suppliers
If suppliers are powerful, then they can demand high prices and better terms of trade that eat into a firm’s profits.
Supplier power is likely to be high when:
The suppliers are concentrated (few of them)
Suppliers provide a specialist or rare input (e.g. powerful brand)
Switching costs are high (it is disruptive or expensive to change suppliers)
Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents)
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Industry Analysis (cont.)
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Force 5 – Intensity of Competitive Rivalry
Intense rivalry amongst direct competitors selling similar products and services aimed at the same customer group can harm and even destroy industry profitability
The degree of rivalry is increased when the industry is characterised by :
Competitors of roughly equal size (no market hierarchy)
Competitors are aggressive in seeking leadership
Market is mature or declining (“dog eat dog” in shrinking market)
High fixed costs (urgent need to generate sales to cover costs)
High exit barriers (stopping failing firms leaving the market)
Low level of differentiation (making firms all look alike to customers)
Competition is focused on price rather than quality and choice
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Industry Analysis (cont.)
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Practical Uses of Five Forces Analysis
Identify the attractiveness of industries – which industries/markets to enter or leave
Identify strategies to influence the impact of the forces, e.g. developing loyalty schemes to reduce buyer power of consumers
Understand how the forces may have a different impact on different organisations, e.g. large firms dealing with barriers to entry more easily than small firms
Apply at the most appropriate level – not necessarily the whole industry (e.g. the local retail market compared to the national/regional market)
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Industry Analysis (cont.)
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How competitive forces changes over time Industry Life Cycle
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Industry Analysis (cont.)
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Killed by the Internet? The decline and death of specialist bricks-and-mortar retailers
CDs/DVDs – HMV
HMV: where did it all go wrong? – BBC News - 14/4/2013 – 3mins http :// www.bbc.co.uk/news/business-22042687
Toys r Us
What happened? https:// www.bbc.co.uk/news/business-43210854
US Department Stores – Sears, Macy’s and K-Mart
American department stores are struggling to compete with online retailing – ABC News - 5/1/2017 – 1:30 min - https://www.youtube.com/watch?v=a-_ efjrr_pA
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Questions for Discussion #2
Which competitive force has the greatest effect on retail profitability? Why?
What measures could retailers adopt to weaken the power of (a) suppliers and (b) buyers?
How can retailers defend their strategic position to stop rival retailers and new entrants taking away their customers?
Price wars between competing retailers can destroy profits. So, why do retailers engage in price wars? What can be done to avoid profit-destroying price wars?
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1. All the forces have an effect but varies from sector to sector – supplier power may be more powerful in the car industry...where the brands are very strong…
Threat of entry always an issue in retailing unless planning permission becomes an issue...
Threat of substitutes – could be cross entry – like a pharmacist one day and then at tesco opens next door
Buyer Power....particularly important – if consumers are fickle – that is if they are very value driven they will be price conscious unlike if they are quality driven...
You want to make suppliers and buyers loyal to you – so loyalty schemes are good ways of keeping consumers. Develop Own labels to counter the power of suppliers....so basically having a switching power...
By building loyalty, build barriers to entry, get exclusivity agreements with suppliers – so basically make it awkward for competitors.
Two reasons: one is a mistake – somebody misreads a price; or sometimes you think you can win a price war and that customers will stick with you and it all end sup in price cuts and loss....you bring the market down, consumers get used to it and then consumers get resistant to price rises.
You build differentiation – so your customers do not switch for penny changes and don’t get sucked in by motivation by price changes
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4. Competitive Position
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Identifying the position of the retailer relative to its rivals with
Strategic Group Analysis
Market Segment Analysis
Purpose of competitive position analysis:
Identify who are the most important competitors
Understand why some competitive positions are more profitable than others
Identify strategic gaps or opportunities
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Competitive Position (cont.)
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Strategic Groups
Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases
These characteristics are different from those in other strategic groups in the same industry or sector
There are many different characteristics that distinguish between strategic groups
Strategic groups can be mapped on to two dimensional charts (“maps”) to highlight opportunities for new/different positions
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Competitive Position (cont.)
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Characteristics for identifying strategic groups
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Competitive Position (cont.)
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Example: strategic groups in UK grocery retailing
Warehouse clubs
Hypermarkets
Conventional Supermarkets
Upmarket Supermarkets
Superstores
Convenience stores
Limited line discounters
High
High
Low
Low
Merchandise range
Price/quality
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Competitive Position (cont.)
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Uses of Strategic Group Analysis
Understanding competition - enables to focus on direct competitors within a strategic group, rather than the whole industry (e.g. Tesco will focus on Sainsburys and Asda)
Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry
Analysis of ‘mobility barriers’ (i.e. obstacles to movement from one strategic group to another)
These barriers can be overcome to enter more attractive groups
Barriers can be built to defend an attractive position in a strategic group
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Competitive Position (cont.)
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Market Segment Analysis
A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market
Where these customer groups are relatively small, such market segments are called ‘niches’
Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy
Customer needs vary for a variety of reasons - these factors can be used to identify distinct market segments
Not all segments are attractive or viable market opportunities – evaluation is essential
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Competitive Position (cont.)
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Bases for Market Segmentation
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Questions for Discussion #3
Using an example of a retail sector of your own choosing (e.g. the one you have identified for your coursework), address the following:
What pair of characteristics would be best to use to draw a strategic group map for this retail sector?
How many strategic groups would this map identify?
What is the most profitable group in your view? Why?
What are the main mobility barriers that means it is hard to move from one group to another?
Are there any strategic ‘white spaces’ that suggest new retail opportunities? Why have these not been explored as yet?
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5. Retail Positioning Strategies
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Key challenges facing retailers in identifying an appropriate strategic position:
How should retailers position themselves for success?
Where are the opportunity gaps for new retail businesses?
How should retailers stake out a clear and consistent positioning strategy to meet consumer expectations?
How broad or narrow should be the target market?
Basic choice between high-end (“up-market”), low-end (“down-market”), or medium (“mid-market”) position
characterised by the wheel of retailing
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Retail Positioning Strategies (cont.)
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The Wheel of Retailing
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Retail Positioning Strategies (cont.)
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Retail Positioning Strategies (cont.)
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Price/Range Positioning Strategies
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6. Case Study: Primark & cheap fashion
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Primark has grown rapidly over recent years by focusing on cheap fashion clothing
Other retailers have also focused on cheap fashion including H&M, Zara, TopShop and New Look
“Fast-fashion” retailers pose a strategic challenge to traditional clothing retailers, by undercutting their prices and offering more fashionable clothing
The business model of Primark focuses on high volume, cost savings wherever possible, and rapid turnover of new styles
...but, what is to stop other retailers copying this business model and undermining Primark’s competitive position?
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Primark update
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Primark operates with 350 stores in 11 countries with 14.400 sq ft retail space
https:// www.retail-week.com/fashion/analysis-primarks-secret-exacting-execution/7030385.article
Primark is second ranked in clothing retailing in the UK with 7.1% market share in 2018
Profit rises 2018: https :// www.retail-week.com/fashion/primark-sales-and-profits-rise-driven-by-the-uk/7030333.article
Corporate video: Primark – there’s nothing like us – 4 mins https :// vimeo.com/169988309
Questions for Discussion #4
Does Primark have competitive advantage? If so, what is the source of that advantage and is it sustainable?
How should established mid-market retailers like Marks & Spencer and Next respond to the challenge of Primark and other cheap fashion retailers (like H&M and TopShop)?
Has cheap fashion debased and devalued the entire clothing market (shrinking its revenue potential) or expanded it (increasing its revenue potential)? Why?
Which retailers are likely to suffer the most because of the growth and expansion of Primark?
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References
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Varley, R. and Rafiq, M. (2014), Principles of Retail Management, 2nd edition, Palgrave MacMillan, chapters 3 & 5.
Berman, B. and Evans, J.R. (2010), Retail Management: A Strategic Approach, 11th edition, Prentice-Hall.
Dobson, P., Starkey, K. and Richards, J. (2004), Strategic Management: Issues and Cases, Blackwell, Ch. 2.
Porter, M.E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press.
Johnson, G., Whittington, R, and Scholes, K. (2011), Exploring Corporate Strategy, 9th edition, FT Prentice Hall.
“Primark counts cost of slow online connection,” Financial Times, 19/9/2016, https:// www.ft.com/content/54ab0c24-7ddd-11e6-8e50-8ec15fb462f4
Thank You!
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