Market Analysis of W M Morrison Supermarket - Essay Example

? Directive and Interactive Marketing The Case of W. M. Morrison Supermarket Question a). Market Analysis of W. M. Morrison Supermarket Overview of W. M. Morrison Supermarket W. M. Morrison Supermarket is Bradford based supermarket chain that operates in the United Kingdom. W. M. Morrison Supermarket is the 4th largest supermarket chain in an industry that continues to experience environmental dynamics such as technological changes and improvements. Due to the drop in sales by approximately 2.5%, W. M. Morrison Supermarket aims at deploying online shopping that grew in 2012 by approximately 20%. Nonetheless, there is need for a market analysis in a bid to ascertain whether launching an on-line shopping facility later in 2013 will be profitable. Situation analysis Situation analysis is a collection of strategic tools for understanding both the internal and external market of W. M. Morrison Supermarket. Situation analysis tools include 5C analysis, SWOT, and Porter’s five forces amongst others (Kotler, 2009). The following is a situation analysis for W. M. Morrison Supermarket on the basis of the aforementioned three tools. A. 5C Analysis The 5C analysis of W. M. Morrison Supermarket includes the company, competitors, customers, collaborators, and climate (Kotler, 2009). It is important to note that W. M. Morrison Supermarket is supermarket chain that operates with a specific environment hence influenced by the above mentioned aspects. Company: W. M. Morrison Supermarket is considered as the 4th largest supermarket chain within the UK markets. Since 2002, Morrison has been able to deliver 3000 varieties of perishable food as well as 600 brands of readymade meals to approximately 250,000 customers thus attracting a turnover of approximately $400m annually. In addition, Morrison enjoys the experience of click and collect sector, which it has a command of approximately 10% in the Fresh Direct, a New York-based entity. The enterprise’s main objective is to increase its sales through adopting new technologies that include internet or on-line selling (Davis & Reilly, 2010). In addition, W. M. Morrison Supermarket has experienced poor performance over the last period with sales reducing by approximately 2.5%. Nonetheless, W. M. Morrison Supermarket continues to enjoy its position within the market. Competitors: Morrison continues to face competition from some of the market leaders within the UK’s grocery retailers such as Tesco, Asda, Waitrose, and Sainsburys amongst other competitors. Whereas Tesco is regarded as the market leader, Sainsburys has an 18% market share and covers 88% of the UK’s grocery market, Asda has 33% of the online market and has 3 dark stores, and Waitrose sells online though Ocado, which is the biggest online only grocer in the UK (Davis & Reilly, 2010). These retailers within the UK’s grocery continue to offer stiff competition to Morrison especially taking into consideration that whereas the formers have online shops, the latter is yet to launch some online shops. Customers: Morrison targets the UK’s grocery market, which is believed to one of the fastest growing areas in retail. Amazingly, the UK’s grocery market accounts for approximately ?5.6 billion of a ?156.8 billion market, which is 3.57% of the total UK’s market (Kotler, 2009). However, positive trends have indicated a likelihood that the UK’s grocery market is likely to double to approximately ?11 billion in the next five years. It is this market that Morrison supermarket chain is targeting. In addition, it is important to note that online customers have continued to increase. Online sales indicated a growth rate of 17.8% in 2012 during the Christmas seasons, which is the fastest ever experienced. Collaborators: Morrison continues to operate within the industry and market through the help of collaborators such as the Fresh Direct, which is a New York-based enterprise for distributing fresh farm produce in New York (Jones, 2012). In addition, Morrison has already acquired Jessop, which collapsed in a bid to enhance its online sales. The other competitors have employed the same strategy in order to attain more sales. Climate: Climate analysis includes the PEST (political, economical, socio-cultural, and technological) (Davis & Reilly, 2010). The following provides an overview of each of these factors that affect the operations of Morrison. Political stability in the UK is favourable for the performances of Morrison. Morrison continues to enjoy a politically serene environment. Besides, Morrison has to abide by the rules and regulations developed by the government in relation to business operations. Economically, it is believed that with the previous global financial and economic crises, many people are shifting from secondary to basic needs. Therefore, Morrison is likely to take up such advantages. However, there has been increased inflation due to such crises hence making the prices of products high that majority of consumers cannot afford. Social statuses are a major factor that will influence the operations and performances of Morrison. For instance, the contemporary society believes that an individual who makes online purchases has some social status. Technological factors are affecting the grocery market in a significant way. For instance, with the introduction of the internet, the grocery market continues to experience increased online sales. B. Porter’s Five Forces Porter’s five forces include threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and the rivalry between the existing partners. Morrison will experience these five forces (Jones, 2012). Threat of new entrants is low since the existing firms have a wide network of consumers. The existing firms command high market shares thus discourages the new entrants. In addition, the capital outlay to establish a new firm is high, which further discourages the new entrants. Threat of substitutes is also medium given that there has been increased amount of processed food that majority of consumers prefer to the fresh products. In addition, genetically modified products are posing serious threats to the grocery sector as consumers tend to shy off from purchasing fresh products for fear that they are genetically modified. Bargaining power of suppliers is low since there are many suppliers as opposed to some industries where suppliers are very few hence the retailers have very little options. Bargaining power of consumers is very high due to presence of many retailers within the grocery market making them (consumers) to have a wide variety of shops to select from. As a result, the retailers have to comply with the demands and needs of their existing customers in a bid to preventing them from going to other shops. For instance, Morrison experienced a mass migration of customers to larger supermarkets due to lack of online shops. Rivalry amongst the competitors is very high. There are many larger, medium, and small retailers within the grocery market. The main competitors include Tesco, Asda, Waitrose, and Sainsburys amongst others. Market Trends, Size Notably, the UK retail business has suffered a stagnant growth in the previous years. Amazingly, the retail sales industry in the UK experienced an increase by 17.8% during the 2012 Christmas season. However, the UK grocery market has experienced increased performance and growth within the UK grocery market. In addition, there has been increased trend within online grocery market in the United Kingdom. For instance, during the 2012, the online sales within the grocery market grew by approximately 20%. In addition, the small local stores also grew during this period by approximately 6% providing a good indicating that even though UK grocery market is small; the recent trends show that it will increase to be a bigger market. What’s more, forecasts made on the market indicate that the market will double in the next fives years (Jones, 2012). This is a good trend that every player within the industry should take up. Morrison’ SWOT Analysis Both internal and external environment provide positive indication that Morrison has strengths and opportunities, which can be used to overcome the weaknesses and the threats within the industry. The following table provides a summary of Morrison SWOT analysis. Whereas Morrison boasts of being the 4th largest supermarket in UK with a direct link and click as well as a subsidiary in New York for distributing its products, the firm suffers from poor and inadequate incorporation of technology to the extent that customers migrate due to lack of online shops (Jones, 2012). Even though Morrison faces threats from the competitors as well as the economical and political environment, UK grocery market has various opportunities that include forecasted growth as well as increased online participation (Hasan, 2012). In addition, technological advancements make Morrison to have more opportunities towards expansion into the online business. Segmentation Segmentation is an important aspect of business operations. Within UK grocery industry various segments have been established in respect to income, occupation, and other demographic factors. Nevertheless, there are two major segments; the physical and online customers. Whereas the physical customers walk into chain stores to purchase their products, the online customers enjoy shopping from the online shops. It is due to technological changes that Morrison lost a good number of its customers to larger supermarkets that had well developed online shops. Therefore, the main segment that Morrison aims at reaching out to is the online segment (Hasan, 2012). The online customers are further divided into various segments on the basis of income, occupation, and other demographic factors. Customer Profiles Whereas there are customers who have accepted and incorporated technology within the purchasing behaviours, other clients are still sceptical about the idea hence continue to prefer supermarket stores. Morrison is trying to launch online stores to reach out to the category of consumers that have since adopted and incorporated technology especially with respect to buying of groceries (Kumar, 2010). Majority of consumers that purchase from the online shops are considered to be those of the high social and economic status who besides have the equipments for making the purchases, they also have required payment modes. It is this category that Morrison aims at reaching out increase sales. Purchase behaviour As mentioned under the customer profiles, the purchasing behaviour of consumers has since shifted from physical to online. Majority of contemporary customers now prefer purchasing groceries from the online shops as opposed to the physical shops (Kumar, 2010). Introduction and incorporation of technology coupled with the need to enhance both social and economic statues have caused the shift from physical to online buying or shopping or the groceries (Hasan, 2012). Therefore, the purchase behavior of consumers within the UK grocery market has since shifted to online shopping thus calling upon various players within the industries, Morrison inclusive to incorporate such technologies. Question b). Outline Proposal for a DIM Campaign for Morrison Objectives, Quantified and Target Markets Within the DIM campaign for Morrison, the objectives, quantified target markets include: Morrison aims at attaining 300,000 within the first 6 months of operation Morrison aims at using a budget of ?2.5 million to achieve the above target. Tactics and DIM Activities The main tactics and DIM activities for Morrison include the use of media and messages. Social media will be used across all the online shops in order to create awareness of the organization’s move towards employing online shopping (Sargeant & West, 2002). It is also important to understand that there will be use of other forms of media in a bid to create further awareness to different groups of people or consumers (Hasan, 2012). Flyers will also be issued to the consumers who use the enterprise’s shops providing adequate information regarding the online shops and procedures that a customer can use to attain the same. Forecasting the Results and the Budget Two main measurements that will be used in forecasting are Response Rate (RR) and the Complete Response (CR). In direct marketing, response rate is the number of people that are likely to respond to a given offer through a campaign. Based on the forecasts, the anticipated RR is 20% obtained from the increase in online shopping. The data that will be used in forecasting the results as well as preparing the budget include: Budget of ?2.5 million; Target 300,000 in the first 6 months Average Customer spends ?77 per basket Therefore, the total target in sales for the first 6 months will be calculated as follows: Total Target Sales = 300,000 * ?77 Total target sales = ?23.1 million every week Since every week the firm is targeting ?23.1 million every week, The total target for the first 6 months of operation will be given as follows: 1 month has 4 weeks; therefore, 6 months will be 24 weeks Total Target Sales for 6 months = 24 weeks * ?23.1 million every week Total Target sales for 6 months = ?0.5544 billion for the first 6 months With a ?2.5 million budget, Morrison will embark in a direct marketing campaign that would mean that approximately ?8 pounds will be spent on one customer in convincing them and creating awareness on the online shopping that the firm is launching. I. Total Budget on the basis of Segments Total budget assigned to project: ?2.5 million a. Creative development (art/copy) ?0.5million b. Production/Printing ?0.5 million c. Mail production ?0.2 million d. Mailing list rental ?0.1 million e. Postage ?0.5 million f. Order fulfilment ?0.7 million g. Total estimated direct mail campaign costs (Sum Ia:If) ?2.5 million II. Minimum quantity for mailing to attain breakeven a. Total cost assigned to campaign ?2.5m b. Net profit per sale 2.5% c. Average order per sale ?77 d. Minimum quantity of orders needed {IIa/(IIb x IIc)} 1.3m e. Anticipated response rate from your mailing (%, according to forecasts): 20% f. Minimum quantity of pieces to be mailed (divide II.e. by I.f.): 3.5m III. Budget in relation to Cost per Response a. Quantity of pieces to be mailed (in 1,000) 3,500 b. Cost per thousand packages (I.g x 1,000)/II.f.) ?715 c. Budget required (IIIa* IIIb) ?2.503m Measuring the Response ROI (Return on investment) will be the main ratio employed in measuring the response. ROI is an important measure especially with respect to the profitability of a given campaign (Sargeant & West, 2002). The amount of positive results obtained will be measured against the initial investment employed in carrying out the campaign. List of References Davis, P., & Reilly, A. (2010) Market power, market outcomes, and remedies in the UK groceries market. Agricultural Economics, 41(s1), p.93-108. Hasan, M. R. (2012) Managerial Finance Analysis of Wm Morrison PLC and Tesco PLC. GRIN Verlag. Jones, S. K. (2012) Creative Strategy in Direct & Interactive Marketing. Racom Communications. Kotler, P. (2009) Marketing management. New Delhi, India: Pearson Education India. Kumar, V. (2010) Customer relationship management. New York, NY: John Wiley & Sons, Ltd. Sargeant, A., & West, D. C. (2002) Direct and interactive marketing. 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