A Strategic Analysis of WM Morrisons Supermarket - Case Study Example

A strategic analysis of Wm Morrison’s supermarket BY YOU YOUR SCHOOL INFO HERE HERE A strategic analysis of Wm Morrison’s supermarket The Morrison’s business model Wm Morrison’s is considered one of the big four supermarkets in the United Kingdom, competing against major industry players such as Tesco, ASDA and Sainsbury. The business attempts to position itself in terms of quality, constantly reiterating its three brand values which include freshness, consumer-centric value, and service excellence (Morrison’s 2010). Value is provided to consumers under its business model with fair pricing structures, in-house coupons and vouchers providing cost savings on a variety of products (including private label brands), and through promotion of internal employee competencies related to service provision. Sainsbury, a major competitor, positions itself in terms of corporate social responsibility whilst Tesco promotes innovation as a positioning strategy. Thus, Morrison’s market positioning provides a distinct, differentiated brand personality which focuses on satisfying the consumer. However, despite this positioning, Morrison’s only holds 13.2 percent of market share in the UK whilst Tesco maintains nearly 30 percent market share (Cengage 2010). Morrison’s should be considered a follower in this oligopolistic market structure, adopting new strategies that have already been established by main competitors. For instance, this supermarket is, in March 2013, rolling out a new children’s clothing line labelled Nutmeg in an effort to boost revenue and provide diverse products to existing loyal customer segments (Chapman 2013; PR Log 2013). Furthermore, Morrison’s plans to launch its first online store in 2014, offering home delivery of food products to consumers in an effort to inject further service innovations and convenience. This online service, however, is present in the Sainsbury and Tesco business models which continue to provide these competitors with first-mover advantages. Late entrants are almost always compared to the pioneer unfavourably (Kalyanaram and Gurumurthy 2008). Morrison’s continues to lag as an innovator, merely replicating the strategic models already infused in competing business models which is what likely contributes to its inability to seize market share. Morrison’s vision is to be considered “a food specialist for everyone” (Morrison’s 2010, p.1). The supermarket maintains a supply chain structure that is integrated vertically which provides Morrison’s opportunities to maintain more power in the supply network. The business maintains its own manufacturing facilities, packing operations and distribution systems that allow the supermarket chain to provide fresher food options at a faster replenishment rate (Morrison’s 2010). Much of Morrison’s products are prepared in-store which provides consumers with extended value associated with its brand values related to freshness. This is completely unique in this particular industry which does provide Morrison’s with some level of competitive advantage. This strategy insulates the supermarket chain from powerful suppliers that have pricing control in the market, allowing Morrison’s to provide its low cost pricing structure associated with its brand promises related to value. Whilst it might appear that Morrison’s has utilised a differentiation strategy, having this level of control over production assets gives the business a strategic cost leadership strategy. It would be impossible for Morrison’s to focus on narrow market segments as the supermarket caters to a diverse plethora of consumers, each maintaining different characteristics, values, motivations and needs. Figure 1 illustrates the characteristics and advantages of a cost leadership strategy. Figure 1: Porter’s Generic Strategies Model Source: ICMBA. (2010). Porter’s Generic Strategies, Internet Centre for Management and Business Administration. [online] Available at: http://www.quickmba.com/strategy/generic.shtml (accessed 2 March 2013). The Ansoff Matrix (Figure 2) describes four specific growth strategies available for businesses, illustrating the growth position of Morrison’s aligned with this model. Figure 2: Ansoff Growth Matrix Source: ICMBA. (2010). Ansoff Matrix, Internet Centre for Management and Business Administration. [online] Available at: http://www.quickmba.com/strategy/matrix/ansoff/ (accessed 1 March 2013). Even though Morrison’s is a follower in adopting similar strategies as major competitors, the business seeks growth through product development which is apparent in the Nutmeg clothing line and development of the impending online sales model. Morrison’s is not seeking new market opportunities through its product development growth strategy, rather the business is attempting to capitalise on its strengths and apply this to existing target consumers. This is the most appropriate strategy for the supermarket chain as the business caters to very diverse market segments, success with the business’ internal human capital competencies, and significant control over manufacturing processes. 2. Critical analysis of the business model Morrison’s is the only supermarket that does not maintain a loyalty program. Tesco provides its customers with the Tesco ClubCard, an effort to extend more cost-related value to its target consumers. Loyal customers are more willing to provide quality word-of-mouth and their spending tends to increase over time (Chaudhuri and Holbrook 2001). With the business putting so much emphasis into attempting to focus on existing markets, why the business has abandoned the loyalty program (when it brings such success to competition) is uncertain. Research did not indicate that Morrison’s is even considering attempting to build loyalty by offering similar club cards that provide extended discounts on a range of products. With its marketing focus being on the core brand values, one of which is total customer value, it would seem that benchmarking Tesco and other competitors’ loyalty schemes would provide significant benefit in enhancing relationships between the brand and its existing target consumers. As Tam (2004) points out, consumers, in the decision-making process, believe that a product or service has higher value when the perceived quality of the product exceeds the expenditures for the product or service. As such, it is research-supported that providing consumers with a loyalty card would improve its positioning associated with brand value. Morrison’s is having trouble increasing patronage levels, due to economic problems in the United Kingdom economy that is impacting revenue production not only for this supermarket, but such players as Tesco and ASDA as well (Baker 2012). In an effort to drive higher footfall, Morrison’s is launching a voucher system that provides “indiscriminate” cost savings on a variety of products. The difficulty in this situation is that businesses using this system of incentives do not earn any money from these types of promotions (Baker 2012). Even Morrison’s realises this, but is attempting to improve the per-visit expenditures of customers by promoting voucher opportunities. Offers the CEO Dalton Phillips, “vouchering has been nuts in my opinion so we spend a lot of time ducking and diving” (Baker 2012, p.1). The main question when attempting to critically evaluate the strategies in place for providing consumers extra value is why the business would openly promote its dissatisfaction with vouchering systems on the heels of this system’s introduction to existing consumers. Since the business is able to effectively leverage pricing due to its integrated manufacturing and supply operations, it would make more sense for Morrison’s to establish a loyalty program that fulfils the same objectives of providing value whilst not adopting the risks that this incentive may not improve per-visit spending with its target markets. Research also did not indicate any focus on behalf of Morrison’s in attempting to strengthen its brand, instead seeming to focus on products and services in the marketing mix. Brand-building activities are the means by which a firm creates connections with consumers by establishing perceptions of continuity of the business. Brand value creates brand equity that leads to multitudes of opportunities to successfully nurture a company’s market assets (Abimbola 2001). Brand equity can be extended into growth in consumer trust in new private label product brands offered at lower cost or allow the business to diversify into wholly new business enterprises. It does not seem that Morrison’s invests much capital or effort into focused promotions in an effort to improve its brand standing among competition. This would seem to be an important strategy for Morrison’s since the company is attempting to appeal to existing markets through its current product development strategies. Under consumer behaviour theory, there is a concept known as cognitive dissonance, which is where an individual’s values, beliefs, behaviours and attitudes are contradictory to one another (Bose and Sarker 2012). It is necessary to remove dissonance as purchasing behaviour is affected when this occurs. Morrison’s is creating this type of cognitive dissonance by offering vouchers in an effort to provide value whilst also chastising the relevancy of this strategy in a variety of well-publicised media formats. If the business leadership does not believe in the integrity of its promotions, it is likely the customers will perceive the same and be less apt to trust in the business. Value is highly subjective and relative to specific markets (Schiffman and Kanuk 2010). It would appear that Morrison’s should be conducting more market research about the target market characteristics, especially related to psychological aspects, in order to create genuine value for consumers. Since the business is attempting with diligence to develop products and service innovations that focus on existing markets (as was illustrated in Figure 2), the business cannot effectively extend perceptions of total brand value without this critical market information that can be gathered either quantitatively or qualitatively. Tesco, as one competitive example, is a leader in conducting this focused market research to identify market needs and then creating products and services aligned with these findings. Morrison’s should be benchmarking this activity as best practice and avoiding negative, publicised commentaries about the effectiveness of its own business model. Cognitive dissonance is surely going to be the end result, a significant risk to its growth strategies related to new product development. Despite the aforesaid weakness related to brand, perceived consumer value and negative publicity, Morrison’s is very effective in involving supply partners in the early stages of new product development. Such alliances with suppliers allow vendors to be more flexible to business needs and allow a company to share resources including technology and human capital competence (Ragatz, Handgeld, and Scannell 1997). For the new Nutmeg clothing line, Morrison’s decided to ally with a separate distribution network that provides the business with knowledge and partner expertise for multi-channel fashion merchandising and sales. This is something that Morrison’s is not very experienced with. It is critical to the success of this supermarket to develop new product and service innovations in order to avoid maturity of its business model and to maintain its existing markets that provide vital profitability. By not attempting to tackle a new clothing line and supply system alone, even though the firm has the capabilities for manufacture, Morrison’s is ensuring strategic success from a fashion sales leader which in this case is Retail Assist. This will build better knowledge necessary if the business decides, in the future, to seek a diversification strategy to launch new business concepts. Tesco and Sainsbury, as two examples, utilise diversification strategies offering such services as tax preparation, clothing lines, and a number of new strategic business units. Better knowledge production occurring through alliances is a strength of this business’ strategic approach for growth. Results from a 2008 survey of 400 shoppers indicated that a staggering 90 percent of consumers believe what makes an ethical company is one that charges fair prices (Morrison’s 2009). As previously recognised, Morrison’s is positioned on the market based on its three brand values, which are freshness, value and service. It might make sense, since such a large majority of customers find more ethical value in a business that charges fair prices, to focus more on pricing as a differentiation tool. It is clear through the establishment of the voucher program and other discounting incentives put in place that Morrison’s considers pricing to be congruently linked to perceived consumer value. During a period where consumer expenditures in grocery products is down due to economic problems in the UK, further extending value as a price construct of the business model could have more positive outcomes not only for existing markets, but in gaining the attention of new markets as well. Having a vertically integrated supply and manufacturing network has many cost advantages by maintaining power over the supply chain which can easily be transferred back to consumers and then effectively advertised. It would be a quality recommendation for Morrison’s to consider repositioning the business from quality to value as a pricing opportunity. With the business’ current inability to seize market share from competitors utilising current operational strategies, pricing may be a proverbial saving grace for a business that cannot increase its footfall volumes. It is further recommended that Morrison’s consider market development as a more effective strategy than product development for existing markets. The diversity of consumers that utilise grocery services is substantial and there was no evidence that there is powerful brand loyalty with existing consumers that shop at the supermarket. The firm’s total competence and experiences are more related to the products and services and not directly with existing markets. The company does not have to shift its brand values related to freshness, value and service excellence, just better identify with a broader segment of market needs. Rather than adopting, as a market laggard, the existing service innovations already well-established with major competition, the business can simply devote more labour and capital into the promotional function by removing its localised ad strategies and making them more nationwide. 3. Conclusion There are definitely certain business activities that Morrison’s performs well under its product development growth strategy and its cost leadership strategy that allows the firm to undercut some competition in pricing. However, the business is not successfully exploiting all of the potential opportunities it can experience by gaining new market attention, repositioning the business to a price-value competitor, and by showing more consistency in faith in its own business activities (such as with the voucher negative press from the CEO about its integrity). Morrison’s should be attracting new markets, rather than relying on building loyalty with current customer segments, which makes sense due to the economic climate in the UK and changing consumer behaviours that impact revenue production for this business and its competitors. If Morrison’s follows the recommended strategies in this report, it will likely find better connection with consumers and increase traffic into its stores. With such a high competitive advantage related to supply and manufacturing networks, Morrison’s should be better exploiting its capacity and internal human talent to build a better brand personality. With more emphasis on the marketing function, which is what most recommendations point toward, it will be better equipped to improve market share and profitability whilst building new market attachments for long-term brand equity in the event of diversification as a new growth strategy tomorrow. References Abimbola, T. (2001). Branding as a competitive strategy for demand management in SMEs, Journal of Research in Marketing & Entrepreneurship, 3(2), pp.97-105. Baker, R. (2012). Morrison’s to focus on targeted promotions, Marketing Week. [online] Available at: http://www.marketingweek.co.uk/news/morrisons-to-focus-on-targeted-promotions/4003732.article (accessed 2 March 2013). Bose, T.K. and Sarker, S. (2012). Cognitive dissonance affecting consumer buying decision-making: a study based on Khulna Metropolitan area, Journal of Management Research, 4(3), p.191. Cengage. (2010). J. Sainsbury plc and the UK food retail industry. [online] Available at: http://cws.cengage.co.uk/thompson5/students/sainscase.pdf (accessed 4 March 2013). Chapman, M. (2013). Morrison’s lays out marketing plans for first clothing range launch, Brand Republic. [online] Available at: http://www.brandrepublic.com/news/1173006/ (accessed 3 March 2013). Chaudhuri, A. and Holbrook, M. (2001). The chain of effects from brand trust and brand affect to brand performance: the role of brand loyalty, Journal of Marketing, 65(2), pp.81-92. Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: pioneers versus late arrivals, Wright University. [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed 2 March 2013). Morrison’s. (2010). Our Strategy – Annual Report and Financial Statements 2010. [online] Available at: http://www.morrisons.co.uk/Corporate/2010/AnnualReport/strategic-review/our-strategy/# (accessed 3 March 2013). Morrison’s. (2009). Our Strategy: Annual Report and Financial Statements 2009. [online] Available at: http://www.morrisons.co.uk/Corporate/2009/AnnualReport/downloads/06_Our_strategy.pdf (accessed 1 March 2013). PR Log. (2013). Morrison’s picks Retail Assist’s supply chain solution, Merret, for Nutmeg launch. [online] Available at: http://www.prlog.org/12091378-morrisons-picks-retail-assists-supply-chain-solution-merret-for-nutmeg-launch.html (accessed 5 March 2013). Ragatz, G.L., Handgeld, R.B. and Scannell, T.V. (1997). Success factors for integrating suppliers into new product development, Journal of Production Innovation Management, 14(2), pp.190-202. Schiffman, L.G. and Kanuk, L.L. (2010). Consumer Behaviour, 10th ed. Upper Saddle River: Prentice Hall International, Inc. Tam, J.M. (2004). Customer satisfaction, service quality and perceived value: an integrative model, Journal of Marketing Management, 20(3), pp.897-917. Read More