Business Performance of Specsavers - Research Paper Example

Contents Contents 1 INTRODUCTION: 1 Background: 1 OBJECTIVE: 2 Terms of reference: 2 2 Briefly describe how Specsavers has added value to its product offering - from being an optician to a leading brand 2 2. PESTEL analysis: 4 3. Analyse the main opportunities and threats that are likely to affect the company over the next five years. 5 Q4. Porters Five Forces analysis for the optical retailing industry 6 5. With reference to some of the strategy models that have been described in lectures outline one possible business development route that the company could pursue in the next five years. 8 References: 9 INTRODUCTION: Background: I am employed by management consultants Watt, Howe-Mutch and Scarper and have been commissioned to write a report to analyse the state of the British high street retailing industry. The report focuses on Specsavers and analyses the company’s business performance as a leading player in the sector. From the analyses I will establish the main reasons for the company’s performance and put forward a recommendation for a future strategy for Specsavers, using appropriate business strategy models. OBJECTIVE: The report had to include the following: A PESTEL analysis focusing on the macro factors that have affected the development and present operations of Specsavers. A Porter’s Five Forces analysis of the industry - establishing the balance of the forces on the industry. Terms of reference: The report had to be handed in by 15th ............??.....................2009. Our main sources of information for this report came from the following: Research Articles, Newspaper and Journal articles and web sites on Specsavers. We also used the Internet and Business books to galvanise our knowledge of analysis techniques used in this report. A list of publications can be found in the Bibliography Briefly describe how Specsavers has added value to its product offering - from being an optician to a leading brand Specsavers has demonstrated noteworthy innovation in its various processes and strategies. These improvements spanned almost all sections – marketing, product design as well as distribution. On the marketing front, Specsavers pioneered a slew of industry standards. For example, it was the first company to start a debit scheme for contact lenses along with free home delivery. This initiative changed the way a customer financed her eye care purchases. Specsavers’ advertising campaigns were perfectly designed to strongly communicate the special features offered by Specsavers. The “Should've gone to Specsavers” campaign reinforced the superior services offered by Specsavers. One of the most important USPs of Specsavers was its great value-for-money positioning. Due to economies of scale, it could negotiate better prices with its vendors, and then passed on savings to its customers. Specsavers offered 2 for 1 glass at £75, an offer that has been very successful. Specsavers also targeted market niches by offering special pricing for its products/services. For example, Senior citizens (over 60 years) were offered a massive 30% discount on glasses. However, the most revolutionary innovation was on the products/services domain. Prior to the arrival of Specsavers, this industry was served by small chains or independent opticians. While these chains offered low cost services, there was enormous room for improvement in their services. Those providing high quality services were costlier & often charged a high premium. Specsavers’ new partnership model brought together for the first time, the best practices of retailing & service delivery concepts along with the best available opticians, but at a much competitive price. While Specsavers offered their partners a range of business support services like accounting, marketing etc, the frontline opticians were free to do what they did the best. The opticians, hence, could concentrate on delivering their best services to the consumers. On the product front, they pioneered innovations like offering varifocal glasses. Specsavers offered the option of returning ‘varifocal’ glasses (some people take time to adjust to these) within a period of 30 days from purchase. After which they could either exchange it for a bifocal or other types of glass. If theirs any price difference, the balance amount is refunded. Spec Savers hearing centers provide free hearing checks & also offer programmable hearing aids at £495, 1 free on 1. In its website it provides a innovative service, through which prospective customers could get online and upload their photos. After which they can try out more than 1000 Specsavers’ frames through that photo. This is a fascinating point for the consumer who, before visiting the stores, could form a clear idea about its offering. Under the National Health System (NHS) of UK, Specsavers provides free eye check up to those who qualify under the stipulated norms. Also some people receive hefty discount on the purchase of their glasses from Specsavers, as per NHS qualification norms. 2. PESTEL analysis: Politcal: Specsavers’s phenomenal growth was triggered by a political incident – shift of UK’s economy from being a protected to market driven economy. However, the future possibilities promise to have a mixed bag of effects. If immigration rules may make it easier for low cost skilled labour to immigrate from East European countries (to UK) and ASEAN countries (to Australia), then the partnership driven Specsavers’ business model may be severely hit. Similarly, lowering on tariffs on import of raw material may have repercussions on Specsavers’ operations. Additionally, Specsavers controls about 30% of the UK eye testing market, and may trigger investigations by market watchdogs for being monopolistic. With the world facing a severe recession, Specsavers may also face an adverse scenario where governments in other host countries introduce protectionist legislations favouring local players. Among the most important positive aspects, Specsavers operates in economies that are highly stable and the probability of political turmoil is minimal. Economic: A major part of the eye wear industry is made of high priced designer glasses & shades. As economic recession is going on in UK and other countries of Western Europe, disposable income is bound to come down which would lead to diminishing sales of these glasses. People would concentrate more on saving money as further downturn in the economy is predicted for the next couple of years. They might have to completely shift their focus from designer glasses & come out with a new product strategy which is more affordable and hence more acceptable to the customer in these circumstances. Social: People belonging to different social base offer different opportunities. For example, the baby boomer generation of the 60s is past 65/70 years of age right now and together offers a great opportunity in terms of spectacle sales & eye care. The younger consumers are hard to satisfy but they form an important chunk of the market. They are even ready to pay a premium for branded designer shades, provided the products satisfy their need. For this Specsavers has to think ahead in terms of styling & design& also it needs to be in touch with the prevailing popular - culture in the society or it might fall behind the ever changing curve of fashion. Technological: New eye care technology like LASIK & PRK (photorefractive keratectomy) is changing the eye care scenario with Vision Correction technology & could hit the sales of spectacles and contact lenses, which is the core business of Specsavers. In future even better technology might come, which would make spectacles completely redundant. But this technological advancement can be used to grow its business of eye care, in which it already has a considerable presence. Through better RnD & newer technology, even better lenses could be manufactured, which are lighter, yet cheaper to produce. (Stanford Health Library, 2009) Environmental: Presently operating mostly in EU countries, Specsavers is accustomed to doing business in democratic & developed countries. But that might not be the case while expanding to newer geographies. Legal: Specsaver’e present market spans over European countries, where the legal systems are similar, being part of EU. But in future it will have to come to terms with disparate laws, duties, tax policies of different countries, as it expands its market. 3. Analyse the main opportunities and threats that are likely to affect the company over the next five years. Opportunities: Geographical expansion: Specsavers is presently operating in a handful of Western European countries & has recently ventured into Australia. The biggest consumer market i.e. USA is still untapped. It hasn’t even entered the two fastest growing economies in the world, China & India both of which offer great opportunities for growth. (Sharma S., 2009) Other Asian countries like Thailand, Malaysia, South Korea – known as Asian Tigers for their economic prowess, Japan (2nd largest economy of the world) are still virgin territories for the company. In fact all the big multinationals in almost any sphere of industry are looking to expand their business in these markets to tap into the potential of present & future growth. USA on the other hand, being the largest economy in the world quite obviously offers a huge business opportunity. Low cost manufacturing : Specsavers has not yet leveraged all the advantages offered by low cost manufacturing and R&D destinations like China, India, Ukraine and Russia. By partial or complete outsourcing its R&D or manufacturing activities in these countries, Specsavers can save costs and pass on these savings to its customers. This delivery model if executed properly can earn huge dividends both for the company as well as the consumers. Expansion into newer domains: Specsavers is a strong brand name in the field of optical retailing. The strength of the brand can be leveraged to expand into other service offerings like “ENT’ (Ear-Nose-Throat) care, Dermatology, beauty clinics, etc. Specsavers can leverage its core competence, attracting and recruiting skilled practitioners, to venture out in other similar markets. Threats: Technological advancements: Technological advancements in the recent years has made it possible to rectify ones vision (also know as vision correction) to normal levels through techniques such as LASIK, PRK (photorefractive keratectomy). Once the vision is corrected, in many cases there is no need for wearing specs or contact lenses. This has a direct negative bearing on Specsavers’ core business. It has to plan ahead in terms of expanding into newer domains, if it wants to maintain the same level of profit in the future also. (http://healthlibrary.stanford.edu) Competition from low cost manufacturing countries: Countries like China, India which have the unique strength of ‘high technology & low cost’, could pose threat to the company, which till now primarily sources its products from high cost manufacturing destinations. It is only a matter of time that one of its competitors, say ‘Boots (from UK)’, laps up this opportunity and poses a direct threat to Specsavers by offering similar range of products at a much competitive and attractive price to the consumer. Or some local Asian company with big ambitions could infiltrate into Specsavers’ market with the same strategy. Specsavers should be alert enough to comprehend the changing world around it, so that it can have the first mover’s advantage & not its competitors. Changing social trends: Specsavers’ products are also used as fashion accessories, and the consumption is dependent on the prevalent fashion trends. Specsavers has to ensure that it is constantly ahead of the fashion trends. Q4. Porters Five Forces analysis for the optical retailing industry SUPPLIER POWER: Most of the inputs are highly standardized; therefore suppliers don’t have much pricing power. Incase of high end luxury designer glasses or shades, suppliers could have negotiations power. Even in these cases also the ultimate sale happens through the retailer so the suppliers don’t pressurize beyond a point. The suppliers could think of branding & selling their supplies as finished goods i.e. Forward integration is possible, but presence of strong established players like Specsavers, Boots, makes it a difficult job. Moreover some of the top established players like Specsavers offer a unique mix of service & retailing, which is difficult to copy. BUYER POWER: The strong established players in the industry enjoy high brand equity, brand identity & considerable amount of loyalty from the buyer or customer. Spectacles & lenses are not commodity and so price sensitivity is low. In fact incase of high end designer glasses some retailers could even charge them a premium. BARRIER TO ENTRY: Well known retailers have a strong & well entrenched relationship with buyers, distributors, suppliers. They also enjoy strong brand identity, well covered distribution strategy, prime location advantage & economies of scale due to expansion over long period of time. For a new player to replicate all these would need huge time & resources, moreover their might be government created barriers for it, in context of taxation or legislations, especially if is foreign player. Moreover in face of increased competition the older retailers could always resort to blackmailing the distributors or channel partners & make them stop selling or doing business with the newer entrants. THREAT OF SUBSTITUTES: New age vision correction technology like LASIK, PRK (photorefractive keratectomy) could pose threat to the requirement of spectacles in the future. Some of the players might source glasses from low cost production bases & offer those at competitive lower prices to the consumer. Or some new and ambitious entity from low cost- high skill, countries like China might venture into its market with competitive products. (Stanford Health Library, 2009) DEGREE OF RIVALRY: A considerable chunk of the market right now is controlled by well established players like Specsavers, Boots, etc., Degree of rivalry in the market between these players is high. Each entity tries to capture a bigger share of the market through product offerings, design capabilities, services etc. (Sharma S., 2009). Specsavers specifically has a unique mix of services and products and has leveraged this to garner a much higher share of the market and stronger brand loyalty even at the face of tough competition from rivals. (Eye Diseases, March 2009) 5. With reference to some of the strategy models that have been described in lectures outline one possible business development route that the company could pursue in the next five years. Ansoff's Matrix could be used to point out the strategic choices for growth. A proper strategic plan should be drawn in the context of market penetration & development, Product development & diversification. Market penetration is possible through: Introducing ‘coupons’ with every purchase, which could be then used to avail discounts (over & above the usual ones) during the next purchase, within a certain period of time. This would increase ‘customer loyalty’. This would encourage increased ‘product usage’ among the customers who would buy more, resulting in increased sales, therefore ‘market share’. These ‘coupons’ could be used by anyone (friends or relatives) & not the customer only. This would increase the ‘customer base’. Product Development Strategy: Constant improvement should be made through R&D infusion. Offering glasses with lighter frames & lenses, better design, at same or lower costs would make the customers happier. Much on the lines of apparel retailers, Specsavers could upgrade designs & technology & sell them to the existing customers who are looking for something new. Product line should be expanded, by offering variants of best selling models. For example Specsavers operates in different countries. They could sell glasses designed by famous local designers, which would appeal more to the consumers. Then shades with local star’s signatures or logo would surely draw the younger consumer to the stores. Little kids would be attracted to glasses with cartoon characters embedded onto them. Market Development strategy: Specsavers should move to newer geographies, which show promise of strong growth. China (GDP- $4.222 trillion, 2008), India (GDP- $1.237 trillion, 2008) and other Asian nations are still growing faster than some of the biggest European nations. More over the largest market in the world, US (GDP- $14.33 trillion, 2008) cannot be neglected. There are many other economies which should be tapped into. Specsavers currently operates 270 stores in Europe. It should focus on increasing the number of stores in each of these countries, along with venturing into newer countries. (CIA, 2008) Diversification: Specsavers by now has a major portion of its business in the ‘eye-testing’ domain. It should leverage its well respected brand value by diversifying into similar areas like ‘dermatology (clinics), Skin care products’, ‘hair-care’, etc. There is a huge opportunity of leveraging its existing & growing customer base, which have faith in the brand. In future if there is a threat to its core business (retail) is affected by Vision correction or other better technology, it could rely upon its diversified portions of business for revenue. References: CIA, 2008, The World Fact Book Country Listing – CIA, [Online] Available: https://www.cia.gov/library/publications/the-world-factbook/countrylisting.html [March 25, 2009] Eye Diseases, No Date, [Online] Available: ttp://healthlibrary.stanford.edu/resources/bodysystems/eye_treatment.html#lasik [March 25, 2009] Sharma S., 2009, India to Pass China as Fastest-Growing Major Economy-Businessweek, [Online] Available: http://www.businessweek.com/globalbiz/content/feb2009/gb2009029_663058.htm [March 25, 2009] Stanford Health Library, 2009, Stanford Hospital and Clinics, [Online] Available: healthlibrary.stanford.edu [March 25, 2009] Read More