Bargaining Power And Strategic Management In Business - Case Study Example

Define the structure of the industry your company is in, and analyse the competitive challenges your company faces within that industry. Bargaining Power of suppliers A look at the growth statistics for Asos.com shows us that the firm has grown quite considerably within a short span of time. With over 9000 products in stock and a warehouse that is the size of 5 football pitches, asos.com is surely one of the largest buyers of raw material in the country. Given the size of the company, it is reasonable to assume that it will have considerable power and influence over its suppliers by virtue of being one of their largest customers. Thus suppliers would have low bargaining power as they risk losing the account of one of their largest customers if the client is not satisfied by the terms offered. With many suppliers being present in the industry, it would be very easy for asos.com to switch suppliers thus weakening the position of suppliers in the market. Bargaining Power of Customers Asos.com is heavily reliant on the internet as its main channel of distribution. It does not have presence as a traditional brick-and-mortar store and thus needs to target a young, fashion conscious market segment and provide them with an interactive, pleasurable online shopping experience in order to drive sales. Secondly, the number of internet buyers in the UK has increased tremendously and with internet access spreading and the number of retailers offering online services also increasing at a fast pace, customers have more options to seek out the bet prices and switch firms, thus providing them with significant buying power over firms and minimizing the risk of exploitation. Fashion retailing being very concentrated in nature and the fact that asos.com does not have any differential advantage over its rivals suggests that the industry is highly competitive and customers exert a lot of influence over firms in the industry and dictate buying patterns. Threat of New Entrants A quick look at the group profits tells us that the industry is a highly attractive one and opportunity seekers will find it quite a lucrative industry to enter into. Thus profitability might eventually decrease if the number of players operating in the market increases further. However, it must be noted that customer loyalty, access to distribution, achieving economies of scale and capital requirements might present significant barriers to entry. Threat of Substitute products Asos.com primarily sells in branded wear as well as in-house apparel brands. The threat of substitute services or products is not high as far as the branded merchandise is concerned since it shall be of similar standard across all retailers. However, asos.com must take care that its in-house brands are not of substandard quality in order to maintain a customer base and preserve loyalty towards the company and it brands. At traditional brick-and-mortar outlets, customers are able to feel the product, try it out to find the right size and fit and judge its quality before deciding whether to purchase it or not. This isn’t possible for online retailers to provide and thus asos.com needs to implement friendly returns policies so as to maintain an advantage and keep its customers happy. Intensity of competition The competition between online retailers in the UK is very intense and firms constantly need to innovate and target a diverse market in order to remain competitive. Asos.com possesses a competitive advantage over its rivals because of the range of products available at the store and its loyal and growing customer base. However it needs to realise it is not only competing with online stores but also offline stores as well and therefore needs to offer a mix of great shopping choices, intense advertising and promotions and an engaging shopping experience. Security in online transactions is one aspect that customers do not have confidence in when it comes to online stores because credit card scams and frauds are quite common occurrences. asos.com needs to offer the highest level of security in online transactions and build customer trust in its bid to offer a secure, private shopping experience to its customers. Additionally, unpredictable delivery times are also a major cause of people not wanting to shop online and asos.com needs to ensure that its distribution channels are working at peak efficiency to deliver products promptly and in good condition. 2. Analyse the economic, political, social, and technological factors that affect your company. Economic The consumers in UK are facing some serious economic challenges these days. They are in a situation where they have to spend more to buy less. The disposable income of consumers is decreasing in UK. This means that the purchasing power has decreased. The VAT has risen in 2011 to a record level. The recession forced the traditional retailers to close down and reduce floor space. On the other hand, the online retail segment has experienced a growth at the same time. The input costs are rising rapidly globally with the rise of crude oil and commodity prices. Due to the exchange rate devaluation the cost of imports have increased. This increases the cost of sales and reduces margin. Political The political environment is very stable in the UK. The consumers feel relaxed about the political situation. Imports from other countries in the EU are exempted from extra import duties in UK. This means that there are less barriers on imports from EU countries. Social The birth rates are continuing to decline and the population is getting older. Therefore, there is a need to target the older people of the society. The consumers are more environmental conscious. Therefore, there is a need to use recyclable packaging and environmental friendly delivery means. There is a heavy influx of immigrants especially from Asia. So, there is a need to target them as well because they represent a substantial market. Technological Internet access has grown by 45 percent from 2003-2006. Broadband connections have tripled in the same period. More people now have access to very high speed internet than ever before. This enables them to access high quality content on the internet. Online retailers can now deliver the shipping experience using multiple ways including sound, high quality images and even videos. Due to the rapid advancement in technology people are now shopping online more. The advancement of technology has enabled people to use broadband internet on portable devices such as mobile phones, iPad, etc. 3. Explain the strengths and weaknesses of your company’s overall strategy and explain how this strategy meets the needs of the company’s customers,and other key stakeholders. Asos.com’s strategy of organic growth has yielded positive results for the company as they have been able to cater to increasing demand of the customers. Organic growth means that a business uses its own internal funds to expand their business rather than going for mergers or acquisitions. Advantages of Organic growth 1. It is cheaper than buying another business for expansion. The purchaser might have to pay the extra premium to buy the other company which makes the expansion very costly. 2. Business cultures do not clash. When you merge with another company it is difficult to manage the two different cultures so by going for organic growth asos.com can avoid this issue. 3. The strategic goals set by the company are also met and the management works in-line with the goals and objective set Disadvantages of Organic growth 1. One of the main disadvantage is that it takes a longer time in expanding through organic growth because the company needs to start from scratch. This is not the case with acquisitions as the setup is already present and it takes less time in running the new venture. 2. It is also riskier as their are no guarantees whether the company will be able to recoup the money invested in the expansion of the business. When companies go for organic growth their operations move to a larger scale and this helps them in benefiting from economies of scale. asos.com also bought in more brands and increased variety which meant that customers now had more choices while shopping . When companies go for acquisitions, the premium they pay for the company might mean that it wipes out the whole value of the acquisition rather than increasing the shareholders’ wealth or value. Thus organic growth helps in maintaining or increasing the shareholders wealth. Bibliography Sadler, P. (2003). Strategic Management. Read More