Marketing Management at Sainsbury Plc - Research Proposal Example

Marketing Management Sainsbury plc, commonly referred to as Sainsbury's, is the publicly listed parent company of Sainsbury's Supermarkets Ltd. In the previous years, the company's retail business was the market leader in the supermarket sector in the United Kingdom (UK). However, since the mid-19990s, Sainsbury's slid down from the top position as its competitive edge gradually diminished. Given this scenario, change in leadership was deemed crucial to salvage the ailing company. As such, Justin King was recently appointed as Chief Executive. The new head immediately implemented a recovery strategy in order for the company to regain market leadership. This paper provides an overview of the crisis encountered by Sainsbury's and aims to assess the company's recovery plan. Furthermore, this paper analyses the firm's internal and external environment through the use of analytical tools such as the PEST and SWOT methods of analysis. In view of the results of the industry analysis, this paper also recommends some strategic options that the company may undertake in order to facilitate its full recovery. Crisis at Sainsbury's Sainsbury's chain of supermarket was once the market leader in the UK supermarket sector. However, it currently occupies the third place, behind its major competitors Tesco and ASDA. The firm has been struggling to keep hold of its market share since the mid-1990s. With this, the company posted dramatically declining profit margins (Wikipedia 2005). Indicative of Sainsbury's lackluster performance, the firm's pretax profit as at end-March 2005 plunged by almost 98% year-on-year, from 610 million in 2004 to only 15 million (Profits collapse at Sainsbury's 2005). To note, it would have generated a negative bottom-line if not for the extraordinary gain on the disposal of its subsidiary in the United States (Wikipedia 2005). According to recently appointed Chief Executive Justin King, the bleak financial result is attributed to Sainsbury's diminishing competitive edge. He cited that in the past years, as the company's competitors have substantially improved, Sainsbury's failed to keep up. (Madslien 2005) Recovery Program In view of the much needed improvement in the company's operations and marketing strategy, King spearheaded a 400-million recovery program. The proposed program covers a three-year period and aims to enhance Sainsbury's marketing strategy (Profits collapse at Sainsbury's 2005). To start off, King launched a direct mail campaign to about a million customers as part of its business review. This is undertaken in order for the company to be aware of customers' expectations as well as identify the critical areas for improvement. The result of this campaign was consistent with the contention of retail analysts that Sainsbury's has severe problem ensuring stock availability. (Wikipedia 2005) This perceived weakness as revealed by the business review is immediately communicated to all store managers. Aside from this, the outcome was also announced publicly and was generally well received by the market and the media. With this, King pushed through with the recovery scheme by laying off about 750 headquarter staff and recruiting around 3,000 shop floor staff to ensure quality customer service and efficient replenishment of stocks. Since the firm's main problem is keeping shelves fully stocked, Sainsbury's management activated two distribution centres to enhance logistics and address issues on stock availability (Wikipedia 2005). It was also reported that Sainsbury's opted to end its ten-year contract with Accenture. After the system in place was deemed ineffective, the firm decided to bring its IT infrastructure back in house over the upcoming months (Ranger 2005). Apart from this, Sainsbury's also announced the halving of the fund allocated for dividends. This is because the firm's earnings would be plowed back to finance the recovery program. (Wikipedia 2005) In addition, to keep up with the competition, King appointed industry experts to join the company. These key figures are previously working for other leading retailers and their experience would significantly enhance Sainsbury's ploy. Evaluation of Recovery Program The major part of the recovery program designed by King involves the cutting of prices and swift replenishment of stocks. These apparently brought back customers to Sainsbury's as there is an estimated 15 million shoppers who frequent the shops weekly. Given this, it can be inferred that there is a positive market feedback with regard to the firm's strategic efforts, dubbed as "Making Sainsbury's Great Again." Indicative of the optimistic market response, Sainsbury's reported a 5.6% increase in total sales to 8.82 billion as at November 2005, with total weekly transactions increasing from 14.5 million to 15 million (Shoppers return to boost Sainsbury's 2005). In view of these encouraging figures, King asserted that the company's effort to improve its service is beginning to show results with both colleagues and customers noticing the changes in the store. (Improved supply lifts Sainsbury's 2005) As the management of Sainsbury's focuses on the company's growth plan, the once market leader has captured about 15.6% market share of grocery sales in the UK. This may potentially bring Sainsbury's up to second place next to Tesco. Price offerings, which are 1.4% lower than in the previous year, reduction of out of stock items by 75% as well as the company's advertising slogan "Try Something New Today" are proving to be effective tools in persuading shoppers to return to Sainsbury's. (Shoppers return to boost Sainsbury's 2005) As discussed, King commenced with the strategic plan by launching a direct mail campaign to get a feel of the market. This initial step is crucial particularly in formulating a customer-driven strategy. This has given Sainsbury's a starting point to determine the firm's direction or intended course of action (Mintzberg 1987). As a retailer, the company should be fully aware of its target market's preferences and expectations. Given the results of the letter campaign, the company immediately acted upon the feedback from their customers. In order to regain the top position, it is critical for the company to ensure customer satisfaction and enhance competitive edge. With this, King and his group considered two major factors for Sainsbury's business strategy. The firm's two-pronged strategy focused on its customers and competitors. With this, they addressed customer complains regarding stock availability in stores. It can be observed that Sainsbury's has taken immediate steps to improve the firm's efficiency in terms of logistics. It has also focused on improving the IT aspect of its supply chain so that level of stock in Sainsbury's 465 supermarkets and 262 convenience stores is effectively tracked. In this regard, Mintel retail analyst Neil Mason commented, "Basically it comes down to product availability. Before Christmas they had big problems with the supply chain and now they're adopting the right strategy." (Improved supply lifts Sainsbury's 2005) Apart from this, the company also managed to enhance its competitive edge by lowering the prices of its product offerings. In comparing the pricing scheme and strategy of major retailers by analysts, noted are the following: (Wikipedia 2005) Tesco adheres to the "inclusive offer" strategy which appeals to a wider market spectrum including the upper, medium and low income customers; ASDA substantially focused on "value for money" concept and promotes itself as the cheapest supermarket in the United Kingdom; Morrison's strategy is based on selling items, specifically food items, at low prices. In view of the above, it can be seen how Sainsbury's competitors' marketing strategy depended heavily on pricing. Given that the firm intends to compete within the same market and offer generally the same wide range of products, it has also consider its pricing scheme as a vital part of its business strategy. As such, the company can no longer disregard the competitive pressure in terms of pricing. Previously, the company considered itself to have a wide lead on quality and retained an image as a high-priced middle class supermarket. Sainsbury's target market seemed not to include the lower-income segment. Given the company's growth plans and aim to capture a greater share, the reduction in prices is deemed as a laudable move by King and his team. Although such may cause a slight decrease in profit margins, the substantial increase in sales volume apparently offsets this. This is evidenced by the reported increase in the company's total sales and number of transactions. These can be attributed to the company's lower price offerings which are at par with the pricing of its competitors. The above discussion, however, focuses only on the company's strategy in the short term. To regain its glory as the market leader, Sainsbury's would need to formulate a full battle plan and develop successful overall strategies which can address factors affecting both external and internal environments as well as the market. Tools for Analysis To enable the firm to come up with effective long term strategies, this section analyses Sainsbury's internal and external environments through the use of tools including the PEST and SWOT analyses. PEST Analysis Political Factors Regulations in the Retail Sector Government policies affecting Sainsbury's and other retailers include the National Minimum Wage, Age Discrimination, and Balancing of Work and Family Life among others. The company is also impacted by environmental policies such as the plastic bag tax and is mandated to adhere to environmental best practices and support consumer awareness initiatives. In the aspect of regulations, retailers in the UK primarily depend on the British Retail Consortium (BRC) particularly the Employment Policy Advisory group, in lobbying for strategic and policy inputs to government and other stakeholders. The BRC believes that retailers like Sainsbury's could effectively manage their staff with minimal regulatory burdens. The organization promotes less regulatory burden in order for retail companies such as Sainsbury's to provide a relatively more enjoyable and rewarding workplace environment. (British Retail Consortium) Competition Commission In a study conducted in 1999 regarding supermarkets in the UK, large supermarkets including Tesco, ASDA, Morrison's and Sainsbury's are found to exert power over the market. The report concluded that the below-cost pricing of these supermarkets is detrimental to smaller grocery outlets. This is said to have a generally adverse impact on consumers specifically the elderly and less mobile, who tend to depend more on these small grocery stores. Given the results of the study, it was recommended that these large supermarkets should apply to the Director General of Fair Trading for consent with regard to acquiring an existing store or building a new store with 1,000 sm of grocery retail sales area within a 15-minute drive time from one of its existing stores. Such policy would represent additional regulatory burden for retailers and entail business risk. However, the report asserts that this would benefit consumers in the long run. Economic Factors As a leading trading power, the UK has a fairly stable economy characterized by sustainable Gross Domestic Product (GDP) growth. With consumption as one of the primary components of GDP, the volume of retail sales also posted consistent growth over the years (Statistics 2005). In this regard, Sainsbury's is facing minimal economic risk due to the sustainable demand of consumers for commodities in light of stable income levels. Social Factors Vital social factors which have significant impact on Sainsbury's include the population growth and consumption behavior. In terms of population growth, the country's population grows annually at an average rate of 0.4%, majority of which resides in England (Statistics 2005) With this, Sainsbury's is ensured of a steadily growing market with rising demand for food and non-food items. However, in view of the more challenging times, growth has been more notable within the food sectors and less remarkable for non-food sectors particularly in the clothes segment (Statistics 2005). It can also be observed how market preference has shifted to high-quality value-for-money goods and services. As such, it would be more beneficial for Sainsbury's to increase its food product offerings at competitive prices. Technological Factors Due to the rapid technological advancements, Sainsbury's can utilise these innovations in improving the IT aspect of its supply chain. From outsourcing this business process, the firm's in-house team now handles the IT operations. In this regard, the firm's in-house team should consider, first and foremost, the various technological methods and breakthroughs that would lead to the enhancement of the firm's supply chain management. SWOT Analysis Strength Given that the firm is one of the best known supermarket chains in the UK, Sainsbury's has already established brand equity, its main strength. The Sainsbury's brand is widely known by consumers as one of the leading retailers in the country, which means it can be easily recalled by its target market. Weakness Despite the perceived brand equity, Sainsbury's has failed to translate this as a value-adding or profit generating factor. Although Sainsbury's shops are able to offer a wide range of quality grocery items, customers seem to relate the brand to higher priced products in light of the firm's previous positioning. Aside from this, Sainsbury's weakness also lies in its inability to keep its shelves fully stocked. This has been one of the major complains of customers which drives them away to the next-door competitor. Opportunity In view of the recent improvements resulting from the firm's recovery plan, Sainsbury's has been receiving positive reviews from its customers and the media as well. The company can bank on this for effective public relations. There have been upbeat articles on Sainsbury's strategy which will continually play a critical role in enticing customers to shop back at Sainsbury's supermarkets. Threats Apart from the regulatory burden which may adversely affect Sainsbury's as discussed in the PEST analysis, the firm is also confronted with intensified competition in the supermarket industry with the presence of formidable rivals including Tesco and ASDA. Another rising competitor is Morrison's which recently acquired Safeway. However, King asserted that he perceives the rise of a larger challenger as an opportunity for Sainsbury's since some former Safeway customers are now defecting. This is because Sainsbury's offers products which are hard to find in the new Safeway stores. (Improved supply lifts Sainsbury's 2005) Strategic Options Least Cost Strategy In its bid to capture the greater market share, the strategic option deemed suitable for Sainsbury's is the least cost strategy. The strategy is suitable for market saturation and effective for commodity industries (Wright 2005). In this regard, the firm competes through cost leadership and offers the market grocery items at lower prices. Based on its recent financial results, this strategy bodes well for Sainsbury's as higher sales volume is generated when the firm opted to make its prices more competitive. As mentioned, although such strategy may result in lower profit margin, this is offset by the substantial increase in sales volume. It should also be noted that if Sainsbury's opts to utilise this strategy, it must ensure the effectiveness of distribution network and the efficiency of supply chain management to keep cost at a minimum. (Wright 1986) Loyalty Business Model To ensure long term stability of the company's supermarket chain, Sainsbury's should also consider the loyalty business strategy. This strategy focuses on customer retention efforts to encourage continues patronage of Sainsbury's. This strategy has myriad advantages. For instance, long term customers potentially generate free word of mouth promotions and referrals. Furthermore, loyal customers tend to be less inclined to switch and tend to be less price sensitive. As such, the firm may enjoy stable unit sales volume and actually increase dollar-sales volume. (Buchanan and Gilles 1990) There is no foreseen disadvantage to this strategic option except for the additional resources entailed to undertake initiatives to increase customer loyalty. However, additional expenses incurred by the company towards this end should be deemed as an investment rather than cost. Public Relations To complement the above strategic options, an effective marketing plan should also be in place. According to marketing guru Philip Kotler (2005), public relations and word-of-mouth are playing a growing role within the current marketing mix. In this regard, the use of media for promotions should be focused on sponsorships, press releases and marketing events. More importantly, Sainsbury's marketing program should involve integrated marketing communications such that the company's brand and customer message must be communicated consistently through all media (Kotler 2005). These strategic options play an important role in Sainsbury's recovery program. These strategies aim to address the company's concerns both in the short-term and long-term. In this regard, Sainsbury's should consider undertaking these strategies in line with its intent of recapturing its position as a market leader. Works Cited British Retail Consortium, Available: http://www.brc.org.uk (Accessed: 25 November 2005) Buchanan, R. and Guiles, C. (1990). "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol. 8, no. 4. Kotler, P. (2005). "Advertising vs. PR: Kotler on Kotler", (Marketing Profs). Available: http://www.marketingprofs.com/5/kotler1/asp (Accessed: 25 November 2005). "Improved supply lifts Sainsbury's", (BBC News), Available: http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4378035.stm (Accessed: 25 November 2005). Madslien, J. (2005). "Profile: Sainsbury's chief Justin King", (BBC News), Available: http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4104755.stm (Accessed: 25 November 2005). "Profits collapse at Sainsbury's", (BBC News), Available: http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4557767.stm (Accessed: 25 November 2005). Ranger, S. (2005). "Sainsbury's scraps outsourcing deal with Accenture", (IT Outsourcing), Available: http://services.silicon.com/itoutsourcing "Shoppers return to boost Sainsbury's", (Manchester Online), Available: http://www.manchesteronline.co.uk/men/business/s/182/182126_shoppers_return_to_boost_sainsburys.html "Supermarkets: A report on the supply of groceries from multiple stores in the United Kingdom", (1999), (Competition Commission), Available: http://www.competition-commission.org.uk (Accessed: 25 November 2005) Statistics (2005), Available: http://www.statistics.gov.uk (Accessed: 25 November 2005). Wikipedia (2005), Available: http://en.wikipedia.org (Accessed: 25 November 2005). Wright, P. (1986). "The Strategic Options of Least Cost, Differentiation and Niche", Business Horizons, March-April 1986. Read More

 

Read More