To: Joan Smithfield
From: Daniel P. Carreon, Senior Strategy Analyst
Date: 2 April 2022
Subject: aa 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 aa (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
