To: Joan Smithfield, CEO
From: Yelena Ruberte, Senior Strategy Analyst
Date: 30 March 2022
Subject: Smithfield Custom Furniture Strategy Recommendation
Ms. Smithfield:
A. Porter’s Competitive Advantage Model can assist Smithfield Custom
Furniture to adopt the right strategy to fully capitalize on the recently
modernized equipment and to position the company ahead of its peers in
the industry environment. Porter recognized two approaches to gain
competitive advantage – differentiation and cost. He also detailed targeting
audience by either targeting the entire market or a particular market
segment (Lumen Learning, n.d.). Smithfield Custom furniture has
successfully sold reasonably priced furniture since its inception, and now
has to make a decision to either continue with the same general direction
to mass produce, mass market, and sell at the lowest price point possible,
or to differentiate and explore a not so known area of custom-made,
upscale type of furniture that is marketed to the top 7.5% of world-wide
income earners. Before making a decision, the following factors should be
considered. Low price leadership strategy entails producing comparable
value goods at a lower price point than company’s rivals. This strategy
assumes that only one or two companies can be industry leaders. Although
low price leadership strategy sounds attractive, it has a few sound
disadvantages such as a lack of differentiation, some methods can be easily
copied by the rivals, and focus on cost-cutting decreases investment in key
activities. According to Lumen Learning (n.d.), advantages of this strategy
consist of reduced buyer bargaining power and less efficient rivals or new
entrants have a difficult time competing. On the other hand, differentiation
leadership strategy entails celling unique goods that provide high value to
the targeted market share and assumes customers will pay extra for a
much better product based on its unique criteria. Advantages of this
strategy include low availability of substitutes, buyers who are willing to
pay more and are less price-sensitive, fewer direct competitors and new
entrants that try to copy the product. Disadvantages of this strategy may
include high costs of production, unique features have to generate value
and may be recreated by rivals. Additionally, unique features and qualities
may be outdated due to innovation and technological advances (Lumen
Learning, n.d.). d d
B. Due to the fact that the low priced furniture market has become
saturated with other competitors, it is reasonable to conclude that it will be
increasingly difficult to enter massed produced, mass-marketed, and sold at
the lowest price point product market. The Smithfield Company will also
have to be as efficient as current market leaders in order to compete as
this strategy entails only one or two market leaders. On the other hand,
producing a new line of furniture that is very upscale, custom-crafted and
exclusively marketed to the top world-wide income earners offers a very
lucrative prospective to the company. This can be achieved if the
Smithfield Company is prepared to deal with disadvantages such as cost of
production and designing distinctive features that will offer value to the
less price-sensitive buyers who value exclusivity. The company will also
have to stay on top of all new and innovative trends to secure profits.
Considering this strategy’s advantages, there will be very few direct
competitors and new entrants and limited (if any) substitutes.
C. The next step is to implement the strategic management process, which
consists of four steps. Firstly, performing PESTEL and SWOT analysis will
be beneficial to assess external and internal environment taking into
consideration adopting a new strategy of differentiating and expending
into a new market of upscale furniture. As stated in Chapter 4 of the
weekly readings, SWOT analysis will look into The Smithfield’s strengths
and weaknesses as well as opportunities and threats from external
environment (p. 132). Secondly, strategy must be formulated, which has
been done above. Thirdly, strategic implementation needs to be completed
to allocate the resources and assign roles for all parties involved. Fourthly,
strategic evaluation and control measurements will allow the leadership to
see the actual results and compare them against the original strategic plan.
This evaluation will entail corrections and organizational adjustments as
needed (Lumen Learning, n.d.).
References
Lumen Learning. (n.d.).
Stages and Types of Strategy | Principles of
Management
. Principles of Management.
