To: Joan Smithfield
From: Daniel P. Carreon, Senior Strategy Analyst
Date: 2 April 2022
Subject: Smithfield Custom Furniture New Product Line
The below memorandum addresses the previously identified concerns ( A-
C) regarding Smithfield Custom Furniture's new product line.
A. Porter's competitive strategy states that an organization can achieve a
competitive advantage through either differentiation or cost. However,
combining low cost and differentiation results in an additional strategy
known as the integrated approach. Additionally, an organization can target
the market by either focusing on a specific segment or the entire market
(Lumen Learning, n.d.-a, para 9).
When looking at Smithfield Custom Furniture's current product line
through Michael Porter's competitive strategy, Smithfield employs the
integrated strategy. It also targets its products to a specific market
segment by selling reasonably priced furniture. This integrated approach
and targeted market segment falls somewhere in the middle of Porter's
competitive advantage and market scope strategies.
Smithfield Custom Furniture can decide to pursue a new furniture line
using the focused differentiation strategy. This strategy would support an
upscale, expensive product crafted from exotic woods. Conversely, a mass-
produced, lower-priced product would employ the low-cost strategy.
Regardless of the decision, the organization should re-evaluate which
competitive strategy to apply. Each option will have distinct advantages
and disadvantages that should be considered more in-depth before
deciding.
A low-cost strategy usually means revenue is made through volume.
Additionally, only one or two organizations are considered market leaders.
The advantages of a low-cost strategy are that less efficient competitors
won't be as competitive, buyers have less opportunity to bargain due to
the low product cost, and the barriers to entry are high. The disadvantages
to a low-cost strategy are that products lack differentiation and are easy to
replicate. Also, keeping costs low reduces the opportunity to invest in
other areas (Lumen Learning, n.d.-b, para 10).
A differentiation strategy requires targeting a specific market segment and
gaining customer loyalty based on a superior or unique product. The
advantages of a differentiated strategy are that your target consumer is
typically less sensitive to price, there are fewer competitors, entry barriers
are high, and the unique or luxurious component of an item makes it hard
to substitute with another product. The disadvantages are that production
costs are high, uniqueness doesn't equate to value, and products can still
be easily replicated (Lumen Learning, n.d.-c, para 12).
B. Based on Smithfield Custom Furniture's current organizational structure,
employing a focused differentiation strategy on upscale, expensive, and
custom-crafted furniture will be the most profitable. The organization
already has a significant advantage over other market entrants with
established retail stores, manufacturers, and a robust global supply chain.
Additionally, organizations like Ikea, Walmart, and Amazon saturate the
budget furniture market. An upscale, custom furniture line will also align
with Smithfield's current name. In addition, it will be harder for competitors
to disrupt without significant financial investment. Lastly, the most
important reason is that the low-price strategy requires production/sale
volume to realize a profit. Although we currently have excess capacity in
our production facilities, the likelihood of increasing overall profit is low
unless we dedicate significant production capacity to the low-price product
line.
C. There are several recommended actions following the decision to
produce a new product line. Smithfield Custom Furniture should conduct
two steps before executing the new product line. First, it should review the
strategic management process and re-evaluate its strategic objectives and
analysis. Smithfield should begin by reviewing its current vision and mission
statement. Are they creating a new mission statement for a new product
line or rewriting their current statements to integrate a new product line
into their existing framework? The vision and mission statements must be
clear, concise, and support each other. Ultimately, they should articulate
and define how Smithfield Custom Furniture will get to where the
organization wants to be in the future (Lumen Learning, n.d.-d, para 4).
Next, Smithfield Custom Furniture should conduct a strategic formulation
through an internal and external analysis using SWOT and PESTEL.
Smithfield will need to evaluate the external factors that could impact or
influence the company or launch of a new product line into a new market.
A PESTEL analysis looks at the Political, Economic, Social, Technological,
Environmental, and Legal factors and how they can impact the organization
and affect performance. The PESTEL supports understanding the business
environment and aids in making informed decisions (Lumen Learning, n.d.-
e, para 5).
References:
Lumen Learning. (n.d.-a). Module 4: Environments and Strategic
Management. In Principles of Management
