Retail Marketing
Magic Solutions
RetailLecture6CompetitiveRetailAdvantage1312019.pptxLecture 6 Retail Strategy 2: Competitive Advantage
NBS-7030B
Retail Marketing & Management
Ratula Chakraborty
Professor of Business Management & Director MSc Programmes
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Lecture Outline
Formulating and Implementing Retail Strategy
Competitive Strategies
Development Strategies
Resource-based Strategies
Sustaining Competitive Advantage
Case Study: Tesco’s Triple E Strategy
Purpose: to understand how competitive advantage is achieved and sustained in retailing
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1. Formulating and Implementing Strategy
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Strategic management
Planning v. Process perspectives
Business objectives
“long-term superior performance”
“sustainable competitive advantage”
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Formulating and Implementing Strategy (cont.)
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Strategic plans
Development plans:
(i) what basis?
(ii) which direction?
(iii) which method?
Assessing strategic options criteria: suitability, feasibility, acceptability
Intended strategy vs. emergent strategy
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Formulating and Implementing Strategy (cont.)
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Strategic Choices for Business Development
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Formulating and Implementing Strategy (cont.)
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Criteria to Assess Strategic Options
Suitability is concerned with assessing which proposed strategies address the key opportunities and constraints an organisation faces. It is about the rationale of a strategy.
Acceptability depends on whether the expected performance outcomes meet the expectations of stakeholders based on three considerations: the level of risk of a strategy, the expected return from a strategy, and the likely reaction of stakeholders.
Feasibility is concerned with whether an organisation has or can obtain the capabilities (resources and competences) to deliver a strategy.
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Formulating and Implementing Strategy (cont.)
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Key questions to be addressed in assessing strategic options
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Formulating and Implementing Strategy (cont.)
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Strategic change
Leadership and strategic vision
Incremental change vs. radical change
Organizational resistance to change
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Formulating and Implementing Strategy (cont.)
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Strategy Development Routes
Not necessarily as intended!
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2. Competitive Strategies
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Porter’s Generic Strategies
Cost-leadership strategy – the firm strives to be the lowest-cost supplier and thus achieve superior profitability from an above-average price–cost margin
(Product) differentiation strategy – the firm strives to differentiate its product (or service) from rivals’ products, such that it can raise price more than the cost of differentiating and thereby achieve superior profitability
Focus strategy – the firm concentrates on a particular segment of the market and applies either a cost-leadership or a differentiation strategy.
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Competitive Strategies (cont.)
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Porter’s Generic Strategies
1. Cost leadership
2. Differentiation
3A. Cost focus
3B. Differentiation focus
Strategic scope
Narrow Broad
Lower Cost
Differentiation
Competitive advantage
Source: Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, 1985
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Example 1: Wal-Mart vs Aldi on Cost Leadership
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Competing cost leaders
Walmart is the world’s largest retailer and the clear cost leader in the superstore grocery sector in America.
Aldi is spreading quickly in America as the leading grocery discount retailer focused on small size supermarkets
Both retailers strive to drive down costs and keep prices low through every-day low price (EDLP) policy
Increasingly they have become direct competitors in local markets and so fighting over market share
Aldi versus Walmart: The grocery low-price challenge – (3 mins) https:// vimeo.com/161792454 (or https :// www.bloomberg.com/news/articles/2016-03-22/wal-mart-loses-everyday-low-price-edge-as-aldi-opens-across-u-s)
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Example 2: Focused cost leadership Slaters Menswear
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The upstairs fashion store
Slaters upstairs location saves it 80% on store rental costs
Slaters avoids expensive marketing and relies almost entirely on word of mouth
Slaters’ low cost base allows for heavily discounted prices on branded menswear
Promo (1 min) - https ://www.youtube.com/watch?v=Sx1yJkm9Wpg
How to wear a kilt (2 min) - https:// www.slaters.co.uk/videos/how-to-put-on-a-kilt
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Questions for Discussion #1
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Applying Porter’s Generic Strategies
Example 1 – Walmart versus Aldi: Who will win?
Example 2 – Slater Menswear: Is being upstairs a sensible strategic position?
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Competitive Strategies (cont.)
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“Stuck in the middle”
caught between cost leadership and differentiation
“The worst strategic error is to be stuck in the middle or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and below-average performance, because pursuing all strategies simultaneously means that a firm is not able to achieve any of them because of their inherent contradictions.”
Michael Porter, The Competitive Advantage of Nations, p.40, 1990
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Competitive Strategies (cont.)
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“Stuck in the middle”
Example 3 - Sainsbury’s generic strategy
The best food is at Sainsbury’s
The cheapest food is at Sainsbury’s
Only organically grown produce is sold at Sainsbury’s
Dairy produce is cheap at Sainsbury’s
Live Well For Less
Strategic scope
Narrow Broad
Unique values as perceived
by customer
Lower cost
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Questions for Discussion #2
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“Stuck in the middle”
Example 3 - Sainsbury’s generic strategy
Is the position of Sainsbury’s a recipe for retail success or inherently one of being “stuck in the middle” and likely doomed to failure?
What was the source of Sainsbury’s original competitive advantage? Low cost, differentiation, or both?
If Sainsbury’s strategy was so effective why did it lose its market leadership position to Tesco by 1995?
Is it possible to have the best of both worlds and be a successful cost leader and successful differentiator?
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Competitive Strategy (cont.)
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The Virtuous Circle
Taking advantage of cost leadership and differentiation
Using the virtuous circle to exploit market share advantage:
High market share
=> Low cost (from economies of scale)
=> Higher profitability (from higher margins)
=> Investment in product/process/service
=> Differentiation advantage
=> Higher sales
=> Higher market share…etc
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Competitive Strategy (cont.)
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The Virtuous Circle
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Competitive Strategy (cont.)
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Value-for-Money (VFM) Strategies
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Competitive Strategy (cont.)
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Value-for-Money (VFM) Strategies
The Strategy Clock – price position and perceived added value
UK Grocery retailing
1. Aldi
2. Asda
3. Tesco
4. Sainsbury’s
5. Waitrose
6-8. Independents
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3. Development Strategies
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Alternative directions for growth
market penetration, product/service development, market development, or pure diversification
Alternative methods of development
Internal development through organic growth
Acquisitions and mergers
Joint ventures (e.g. in Indian retailing)
Hybrid arrangements – e.g. franchising
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Development Strategies (cont.)
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Alternative directions for growth
Source: Adapted from H.I. Ansoff, Corporate Strategy, Penguin, 1988
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Development Strategies (cont.)
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Alternative methods of development
Source: Johnson, Whittington and Scholes, Exploring Corporate Strategy, 2011
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4. Resource-based Strategies
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Core competencies
Sources of distinctive capabilities - Architecture, Reputation, Innovation, and Strategic Assets (e.g. monopoly/exclusivity rights and sunk costs providing incumbency advantage)
Leveraging resources and competences
Strategy as “fit” v. Strategy as “stretch”
S.W.O.T analysis
organisational “strengths” and “weaknesses”
business environment “opportunities” and “threats”
Competing for the Future
Long-term strategic intent
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Resource-based Strategies (cont.)
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Strategy as “stretch” or strategy as “fit”
Hamel and Prahalad’s View of Strategy
Strategic fit vs Strategy as stretch
Strategic business units vs Core competencies
Defending competitive vs Creating new competitive
space space
Served markets vs New markets
Performance gap vs Opportunity gap
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Resource-based Strategies (cont.)
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Work towards long-term strategic intent through leveraging core competences
Strategic intent is characterised by:
Obsession with winning
Stretch
Stability over time
Deserving of personal commitment
Criteria for core competence (collective learning):
Provides unique differentiation
Transcends businesses
Is difficult to imitate
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Resource-based Strategies (cont.)
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Use core competences to “compete for the future”
| New Core Competence Existing | Premier plus 10 What new core competencies will we need to build to protect and extend our franchise in current markets? | Mega-opportunities What new core competencies would we need to build to participate in the most exciting markets of the future? |
| Fill in the blanks What is the opportunity to improve our position in existing markets by better leveraging our existing core competencies? | White spaces What new products or services could we create by creatively redeploying or recombining our current core competencies? | |
| Existing | New | |
| Market |
Source: Gary Hamel and C.K. Prahalad Competing for the Future, HBS Press, 1994
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Resource-based Strategies (cont.)
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Competing on Resources
Competitively valuable resources can be physical, intangible (e.g. brand names or know-how), or an organizational capability embedded in a company’s routines, processes, and culture
Competitive advantage derived from ownership of a valuable resource that enables a company to perform activities better or more cheaply than competitors
Superior performance based on developing a competitively distinct set of resources and deploying them in a well-conceived strategy
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Resource-based Strategies (cont.)
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Competitively Valuable Resources
Five tests to ensure that a resource is competitively valuable
Inimitability – Is the resource hard to copy? (Inimitability may be due to physical uniqueness, path dependency (i.e. history), causal ambiguity (often organizational capabilities), and economic deterrence)
Durability – How quickly does the resource depreciate?
Appropriability – Who captures the value that the resource creates?
Substitutability – Can a unique resource be trumped by a different resource?
Competitive superiority – Whose resource is really better?
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5. Sustaining Competitive Advantage
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Challenges in sustaining competitive advantage:
Transient vs. persistent competitive advantage
Resource advantage vs. positioning advantage
Strategic flexibility: adapting to changing environments
Tackling brand fatigue: rejuvenation vs. reinvention
“Too big, too successful”: the threat of consumer resentment and antitrust regulation
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Questions for Discussion #3
Using an example of a leading retailer, what strategic resources does it have that provide competitive advantage? Can this resource advantage be sustained?
Value retailers (e.g. Poundland and Poundstretcher) have enjoyed considerable success in recent years. Is this success sustainable? Why?
Why is that apparently dominant retailers in their respective market find it very difficult to make any profits? (For example, Waterstones in books and Currys in electrical items as well as online retailers like Amazon, Asos and Boohoo – see http:// www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11330696/Why-are-Amazon-and-online-retailers-struggling-to-make-money.html - Telegraph, 7/1/2015)
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6. Case Study: Tesco’s Triple E Strategy
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“Sell Everywhere, to Everyone, Everything”
https://www.youtube.com/watch?v=bf9Xe_xYMkc
Core purpose: “to create value for customers to earn their lifetime loyalty”
Core values: “no-one tries harder for customers and treat people how we like to be treated”
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Questions for Discussion #4
What is the source of Tesco’s competitive advantage?
Is Tesco’s competitive advantage sustainable? Why?
Will Tesco still be the UK’s leading retailer in 20 years time? Who could possibly challenge their dominant position?
What is to stop Tesco’s dominating all retail markets in the UK?
Are there lessons from Tesco’s success that could be successfully applied by other retailers in other retail sectors to gain and sustain competitive advantage? https:// www.youtube.com/watch?v=cvRij5vxKJc
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Tesco hits hard times and makes record loss:
Horsemeat scandal – February 2013 – BBC News 2:40min http :// www.bbc.co.uk/news/uk-21420894
Profits fall 52% and exit USA - April 2013 – BBC News 2:30min - http:// www.bbc.co.uk/news/business-22179738
Decline of hypermarket retailing – Aug 2013 – BBC News 2min - http:// www.bbc.co.uk/news/uk-23625276
Profits fall 6.9% - April 2014 – BBC News 2:30min - http:// www.bbc.co.uk/news/business-27046103
Resignation of Philip Clarke as CEO – July 2014 – 1min - https:// www.youtube.com/watch?v=lWscZKG1iQY
Profits overstated by £250m – Sept 2014 - BBC News 3mins - http:// www.bbc.co.uk/news/uk-29306428
Tesco make a record loss of £6.4bn - 2mins – April 2015 – https :// www.youtube.com/watch?v=efOIUyO5vdY
Tesco is back - https:// www.campaignlive.co.uk/article/tesco-back-thanks-lewis-turnaround-return-good-old-days-may-not-happen/1446438
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Why Tesco hits bad times…
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April 2016 – with Dave Lewis as the new CEO profits rise to £162m in 2015/6 following previous £6.4bn loss – 5 News - 2mins - https:// www.youtube.com/watch?v=dtfhcr9fsbE
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…Tesco bounces back
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References
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Varley, R. and Rafiq, M. (2014), Principles of Retail Management, 2nd edition, Palgrave MacMillan, Ch. 5 & 6.
Dobson, P., Starkey, K. and Richards, J. (2004), Strategic Management: Issues and Cases, Ch. 3.
Porter, M.E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press.
Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press.
Johnson, G., Whittington, R, and Scholes, K. (2011), Exploring Corporate Strategy, 9th edition, FT Prentice Hall.
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Thank You!
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