The Competitive Environment in the Market - Term Paper Example

The Five Forces Analysis helps the marketer to contrast a competitive environment and comprises: supplier power, buyer power, competitive rivalry, threat of substitutes, and threat of new entrants. These five forces are also an acronym of the Porter's theory of generic strategy, and so the answers here would cover questions 'a' and 'b' of this paper. The following analysis/report is therefore applicable to Morrison, as per the case, with reference to the diagram below. Fig.1 The five forces model1 Supplier Power This aspect of the five forces basically assesses how easy it is for Morrisons suppliers to drive up prices in the market environment. The ability of a supplier to drive up prices would depend on the extent to which Morrisons can control this supplier. So far, Morrisons has been able to control a group of farmers producing carrots, onions, potatoes and mushrooms. This view is supported by information from the website that when in season Morrisons gets 100% of its carrots from British farmers, as well as 90% of other food items like onions, potatoes and mushrooms. Harnessing the supply of such food items from British farmers means the farmers have very few markets to for their products. This therefore creates a situation whereby Morrisons can easily determine the prices at which it buys these food items. Hence the suppliers' power to influence the prices is reduced. On the other hand, Morrisons supports and controls the entire market outlet of local and small suppliers. This power exerted by Morrisons can be seen in the information that Kelly's ice cream and Sharpes Eden Ale can only be found in our Morrisons Cornish stores. It therefore shows that these suppliers have limited power to drive up the prices of their products to Morrisons. Buyer Power Buyer power denotes the ability of Morrisons customers to drive down prices. So far, no documented evidence exists on how customers have influenced the pricing of products at Morrisons. Given that Morrisons operates along side other chains like ASDA, Sainsbury, LIDL, TESCO, Somerfield, Waitrose, the customers have variety and choices at their disposal, and can easily switch from one supermarket to the other. However, they can rarely drive down prices. So Morrisons can only have its prices determined if they were dealing with a few powerful buyers who would dictate the terms. Competitive Rivalry The competitive rivalry surrounding the Morrisons business environment is determined by the number and capability of its competitors. Some of these competitors include: Asda, Lidl, Tesco, Marks & Spencer, Netto, Somerfield, Waitrose, and others. If these competitors can offer equally attractive products and services as Morrisons, then Morrisons would most likely have little power in the market. These competitors are many and are likely to strive to provide quality products and services too, such that Morrisons hasn't the tremendous strength to control the market. Threat of Substitutes The ability of Morrison's customers to find substitute products and services from different supermarket chains would determine the level of rivalry between Morrisons and other competitors. As seen above, there are many supermarket chains trading in the same products and services as Morrisons, giving customers a host of choices at their disposal. Therefore substitution for Morrison's products is easy and viable, weakening its power to command the market. Threat of New Entrants Morrison's power in the supermarket business would be affected by the ability of other investors to enter the market. If it isn't so costly, in respect of time and money, to enter the supermarket then it is expected that more of similar businesses would be started and this would increase the strain on Morrisons to loose its leadership role in the market. Going by the number of supermarkets that have set u in the UK recently, including LIDL from Germany, one can tell that investing into the supermarket business is not so costly in terms of time or raising the venture capital. Hence Morrisons faces severe threats from new entrants. On the other hand, Morrisons has little protection for its key technologies and this makes it easy for competitors to enter the market and weaken its position. Morrisons has no stronger and durable barriers preventing investors to enter the market, and so it can not preserve a favourable position and take fair advantage of it. C) How competitive advantage is achieved through the value chain and the supermarket's operation management system. The Morrisons value chain can be broken down into the following sets of processes and activities: Inbound logistics, Operations, Outbound logistics, Marketing & sales, and Services. The efficient management of these processes has made Morrisons achieve competitive advantage that other supermarket chains are only struggling to trail. The diagram below shows these processes and activities. Fig.2 Value Chain2 As per inbound logistics, Morrisons has the facilities to manage its supply chain to enhance the flow of other goods and services from suppliers to its warehouses and consequently to its distribution and shopping. The flow-in of these goods begins with the procurement processes. The strategic management of this logistics system is thanks to the transport infrastructure at the disposal of the company. Then the human resource potential of Morrisons ensures that goods brought from suppliers are processed and packaged with the required labels on them for display in the shops. When these goods are processed outbound logistics conveys them to the various shopping centres so that they are made available to customers. For example, it was obtained from the Morrisons website that the supermarket packs and delivers 80% of its fresh produce in-house, which means the products reach the customers at the freshest state. Also, they offer the widest range of cuts of meat to customers because the butchers cut it fresh in store throughout the day. While in the shopping centres, the competent sales and marketing team takes charge of arranging the goods on the shop floor and also assists customers on the shop floor. As customers shop in the stores, they are given services like information on the usage and availability of products and other services, as well as pricing. The rationale behind this is to create a Just-In-Time managerial system that gets the right products to the right customers, at the right place, at the right time and at the right price. This is how Morrisons achieves and sustain competitive advantage through its value chain. D) SWOT Analysis The Morrisons SWOT analysis would seek to explain its internal and external capabilities as well as its internal and external weaknesses. These could be seen as a measure of its strength, weaknesses, opportunities, and threats. Of all the supermarket chains in the UK, Morrisons boasts a unique strength. This strength lies in its ability to keep a diversified portfolio of goods and services. For example, Morrisons is the only supermarket chain in the UK that operates fuel stations under its Morrisons brand name. This serves as a strategic marketing tool, given that it would sound somehow ambiguous for a motorist to fuel his or her car in a Morrisons filling station and then drive off to do shopping in an ASDA or Tesco shopping centre. The idea to also incorporate dry-cleaning and pharmacy services within is range of products and services is also a major strength. Meanwhile, Morrisons enjoys a major strength by being able to manage almost every aspect of its commercial operation in-house, including fresh fruit and vegetables, fresh food, meat processing and transport. A fourth set of strengths making Morrisons to sustain competitive advantage is its ability to continuously improve on the quality and variety of its own label range. As a major weakness, Morrisons has just three packing plants (Cheshire, Northampton, and Yorkshire). This means that it does not optimize its logistics services level as per the closeness of warehouses to the market. In a situation where only three packing plants exist to serve a market as wide as the UK, competitors who have more plants widely spread all over the UK would get their products and services faster to the market than Morrisons could do. Though Morrisons has the fleet of vehicles and refrigerated trucks to channel the required goods to the customers, taking these products there on time should be of utmost priority. This obviously means operating more packing centres that are close to more customers as much as possible. Morrisons has a wide range of investment opportunities in other parts of the UK like Wales, where it recently opened its first store in the seaside resort of Rhyl. Going by the population statistics of this town (35000), one can infer that a single store would not be sufficient to meet up the demands of the new customers who would be willing switch allegiance from one or a number of Morrisons competitors. On the other hand, Morrisons can benefit from investment opportunities in the countries that just joined the European Union as recently as 2004. The supermarket industry is seen to have potential for investment, given that they were not so open to competition prior to joining the EU. However, Morrisons faces potential threats in its business. With the UK government creating conducive atmosphere for foreign investors in the supermarket industry, a number of companies have started flooding the supermarket business. A case in point is the German supermarket, LIDL which has implanted itself in the UK and is succeeding to operate as the cheapest supermarket and food chain in the UK ad so many other European Union countries like Sweden, Italy, Finland, Belgium and a host of others. So Morrisons would best withstand such threats from foreign supermarkets when it can be able to operate at low cost without compromising the quality of its products. E) The PESTEL Analysis This analysis covers the factors in the external business climate that influence the smooth operations of Morrisons on either a positive or negative trend. This analysis therefore covers the Political, Economic, Social, Technological, Environmental and Legal aspects of the environment in which Morrisons operate. So far, the UK has one of the most politically stable economies in the world such that incidents of regional conflicts, pre/post election violence are non existent. This political stability ensures a serene atmosphere for Morrisons to carry on business in any part of the UK without fear of disruption of its operations through any sort of violence. However, since the terrorists events of September 11, 2001and the July 7 bombings of 2005, there has been frequent disruptions on the daily operations of daily businesses. This is particularly true when the nation is on alert over a likely terrorist attack. When this is the case, business activities and other transactions slow down in a bid to maximise loss impact after a terrorist act. Morrisons is therefore also caught in this web. Britain is Europe's second largest economy, after Germany and boasts of a ready market for consumption as well as investment. Morrisons is therefore operating in an environment where the population assures a ready market for goods and services through out the year. This ready market is backed by the citizen's high purchasing power and their relatively higher level of income. On the other hand, a blend of economic policies and political factors could limit the scope of operations for Morrisons. This could be seen in the light of laws governing exports and imports of other goods and services on the Morrisons portfolio. The UK has one of the most diverse social make-ups in Europe, and this goes to account for the multicultural nature of Britain and its promising consumer market. This multicultural society offers to Morrisons the opportunity to offer different ranges of products to meet the requirements, taste and fashion for customers of different background. Hence the supermarket is bound to operate a portfolio of goods and services to address the different classes in society. The technological aspect of this analysis embodies both transport, and information & communication technology infrastructure. Britain has an excellent transportation and communication network that allows Morrisons to efficiently move its products and services from its plants to its stores and subsequently to the customers. This has provided the excellent and reliable mode through which Morrisons can reach its customers. Meanwhile, Britain is one of the countries with a strong sense of environmental awareness in the world. This awareness has led to promulgated laws to restrain the scope of expansion or operations of some companies whose activities damage the environment. However, Morrisons has not been caught in this loop because its activities are environmental friendly and so is not subject to frequent checks and regulations by the state. In like manner, the legal procedures to set up business in Britain haven't much documented bottlenecks. This was one of the reasons that Morrisons was fully formed into a company different from the stall that started in the late nineteenth century. Another issue to be looked on the legal analysis is the government policy on taxation. Morrisons has been able to operate successfully over the years because the government's policy on taxation allows for shareholders to always see the results of their investment. Comment on Evaluation So far, the above evaluation is an attempt to look at the external and internal environment in which the Morrisons supermarket operates. The evaluation shows that Morrisons is operating in a very competitive environment, and faces competition not only from domestic supermarkets but from foreign supermarkets as well. Such competition can best be challenged by reengineering its business processes such that it can offer a variety of products and services at low cost without compromising quality. This step should also be complemented by redesigning its logistics systems so that it operates o a Just-In-Time strategy. Read More