Corporate Strategy for Alliance Boots - Research Paper Example

Section Pestle analysis Political/legal Alliance Boots has to follow strict rules and regulations set by the government for the selling and distribution of its products especially its drugs. Maddox (2004) suggests that this is because the drugs that they sell have to be genuine and have original ingredients. Thus there is strict quality checking of the products that the firm sells. Moreover, for the over-the-counter drugs, the retail pricing maintenance has been removed which means that the government is encouraging price competition in the product category. This has made the environment more competitive. Economic The economic conditions of consumers have deteriorated as the purchasing power has lowered. Thus the consumers are more careful about how they spend their money. This has also changed their purchasing habit (Alliance Boots 2009). Schultz and Philip (1999) suggest that previously when they went to different stores to buy different products, they now prefer to save on travel expenses and purchase products from a superstore only. Thus the number of people wanting to go to Boots to purchase their health products has lessened as consumer prefer to opt for more convenient and cheaper modes of purchase. Adding to it, with the economic downturn, the interest rates have increased and so has inflation. Thus Maddox (2004) says that people resort to cheaper alternatives and generic drugs than the more expensive options. They also buy less of beauty products and with the increasing prices; the overall demand for all the products has decreased. Social Today with the economy going down, people have changed the way they shop. Previously they had the time to go to different shops to purchase products of their choice. However, Fill (2003) suggests that with the changing job scenario, people work harder and take up two jobs and thus they don’t have the time to go to different shops to p-purchase different things. They prefer going under one roof and purchasing everything. Thus the sales have decreased due to this as the consumers go to one stop stores. Technology Technology is playing a vital role in the industry. As Fill (2003) the internet has enabled integrated marketing communication with the customers and thus this helps build the brand loyalty. Moreover, keeping an account of inventory and supply chain has become easier. Thus the business has improved overall with the integration of technology. Ecological The industry is often critically viewed as the industry needs to be socially responsible. The drug business is very critical and thus the products should be free of any defects. Schultz and Philip (1999) suggest that if a drug is below quality it has to be removed from the market. It is essential in the industry to market the right product and be socially responsible. The industry is being responsible and introducing green products to helps heal the environment. Fill (2003) sys that Boots has been successful in maintaining a positive image of being socially responsible however, there have been instances where it has been marketing products inappropriate by misleading the audience with its marketing. Section 2 Porter’s five forces Bargaining power of the supplier The bargaining power of the suppliers is low because Boots is one of the largest pharmacies in the UK. Alliance Boots boasts 2,300 outlets, with 1,400 Boots stores and 900 pharmacies (Alliance Boots 2009). As per Maddox (2004), this makes them very powerful in the market and thus every supplier wants to work with them. There are about 80 suppliers working in conjunction with Alliance Boots and thus there is a lot of competition between them. If a supplier doesn’t yield to the demands of the firm, it will lose a major business alliance but it will not majorly affect Boots. The firm has even tried to force prices down between 8-15% when their merger took place and most of the suppliers had to comply (High Beam Research 2008). Thus the suppliers have a very low bargaining power with Boots. Bargaining power of customers The customers have a high bargaining power. This is because the competition has risen tremendously in the market. The many superstores are now stocking health related products along with the general items. Thus customers prefer going there instead of going to Boots just for these items (High Beam Research 2008). Thus Boots cannot be demanding and has to succumb to the needs of the customer. It has to offer the customers discounts and saving offers to keep them attracted along with exceptional customer services to keep them loyal to the brand. Threat of new entrant Alliance Boots has 17% of the market share in UK which gives it a very powerful position (Alliance Boots 2009). Thus new entrants cannot be a threat to the giant firm as it is a very stable firm in the market. To give significant competition to Boots, a new entrant has to invest substantially and at the same time set up its branches in key selling areas which will be quite expensive for them. Moreover, Boots has a stream of loyal customers which will be difficult for the new entrants to capture. Competition There exists tough competition in the market and recently Boots has been facing a lot of competition. Major supermarket stores like Tesco and Asda are major sources of competition as they are now offering health related products and photo processing areas. Electrical retailers like Argos and Dixons are stocking photographic and electrical beauty products which has increased the competition for Boots (High Beam Research 2008). Hence the competitive environment for Boots has become tough as other stores have started to expand their product range and are seeking to capture the market share of Boots. Threat of substitute products. Substitute products include technological change that may affect the industry including Boots. The firm already has a well established online store whereby customers can purchase products there. Tesco has an integrated marketing system which may influence the customers of Boots as Boots doesn’t have such a well integrated way of reaching out to their customers (Tesco 2009). Could affect the sales and thus the firm should work towards incorporating technology into their system at a deeper level. Section 3 The EFE and IFE matrixes help a firm in recognizing the threats, opportunities, strengths and weaknesses. When these are listed, weights are then given to each of the factors as per importance. Then the factors are rated on a scale of 1-4. When this is done, the weighted score is calculated by multiplying the weights and the rates. If the weighted score is above 2.5 then the firm is doing well and if it is below then the firm needs to improve itself (Maxi Pedia 2009). Opportunities weights Rating Weighted score Online store 0.05 4 0.2 Integrated marketing 0.2 3 0.4 Threats Quality checks 0.1 4 0.3 Price competition 0.1 4 0.4 Consumers spending less 0.1 1 0.1 Consumers like one-stop-buying 0.1 1 0.1 Increased interest rates 0.05 3 0.15 Consumer resort to cheaper alternatives 0.1 3 0.3 Decrease in purchase of beauty products 0.05 2 0.1 Social responsibility 0.05 2 0.1 Competition 0.1 1 0.1 2.25 Poor 1, below ave2, above average3, superior 4 The EFE matrix of Boots shows that the total weighted score is 2.25. This score indicates that the firm is not very prepared to face the threats that the external environment poses for the firm. Moreover, the matrix also indicates that the opportunities that the firm may have, it is not utilizing them appropriately. This is the reason why the firm’s total weighted score is below average which indicates that it needs to change its strategies for its external environment. This means that it needs to reevaluate its assets and strengths to be able to avail the opportunities that the environment has for it. For instance referring to the matrix we see that even though the firm is aware of the competition that has entered the market like Tesco and Asda, the strategies for the firm are not appropriate to face them and hence the rating for its strategy to face competition is 1 which is poor. Moreover, when we see the consumer spending has decreased, the firm has not made many attempts to attract customers which it can do by creative marketing like discounts, coupons and other marketing schemes etc. moreover, even though the firm is financially very strong, it has not improved its integrated marketing system to the level of Tesco so that it could compete with the firm. Hence overall, even though there are opportunities open to Boots, it is not utilizing them. Moreover, it is not well prepared for the threats that the environment poses. If the firm does not take steps to withstand the threats with its strategies and utilize the opportunities then the firm is bound to suffer losses in terms of lowered sales and decrease in customer volume. Section 4 Strengths The major strength of Boots is that it is a leading pharmaceutical of UK. It is in every prominent place of the region and thus over time it has become a trusted name. The consumers trust the brand and have grown loyal to it. As per Maddox (2004), Alliance Boots has recently revamped its image and it has resulted in more brand loyalty and trust for the firm. The 110,000 employees globally in 3200 retail outlets are dedicated and work hard as the firm gives them recognition for their efforts and there is a good reward system in place (Alliance Boots 2009). Employees are given bonuses and the firm has in-store activities like employee of the month etc to keep them dedicated and motivated. The employees also have healthy team work in place and are given decision making powers which gives them empowerment and more motivation to work within the firm. This according to Fill (2003) also enables the firm to make quick changes and keep it updated. Boots group has business units of retailing wholesaling and contract manufacturing(Alliance Boots 2009). This gives them an edge to the firm in the industry as the firm’s supply chain is very strong. Moreover its distribution is also very strong and developed which gives the firm as edge in the industry. Since Alliance Boots has strong financial strength with turnover of more than 17 billion pounds, it has been able to withstand the recession and is making cost effective efforts to stay focused in its business(Alliance Boots 2009). It has strong alliances with doctors, depots, hospitals and pharmacies with a network of 130000 and thus has consistent customers that prefer wholesale purchasing(Alliance Boots 2009). Alliance Boots also has a very well developed online store and it has been able to keep a substantial amount of customers loyal via its online integrated marketing. Moreover, as Fill (2003) explains, its Advantage Card also keeps customers loyal. Weakness The main weakness of the firm is that it is a pharmacy and thus has a lot of upcoming competition. Major firms like Tesco and Asda which stock every consumer product have also started stocking pharmacy and beauty products and are giving a tough time to Boots. This is because customers now prefer a one-stop-shop instead of stopping especially at Boots for pharmaceutical products. Thus Boots has to tackle such competition and given time, these competitors will take a chunk of its 17% of market share(Alliance Boots 2009). The firm also had failed expansion plans in the US and has been operating via implants in prominent retail stores. This has limited its growth unlike Tesco and Asda who have already ventured the US market. Tesco has a very well developed integrated marketing system and thus has innumerable loyal customers. Schultz and Philip (1999) suggest that Boots cannot compete with it in the given scenario and thus this also causes a backlog. Such relationship building has taken Tesco time and has gained competitive edge. Alliance Boots has also been involved in illegal practices like hide the original contents of its medicines when it should have actually lifted the product off the racks as it was harmful for consumption. It has been widely criticized for such acts which puts them at a disadvantage. Lastly, the marketing of pharmaceutical products has legal bounds which limit the creativity of the advertisements. The firm has to follow strict rules and regulations laid down by the government(Alliance Boots 2009). Thus Boots is at a disadvantage over its competitors as it can only market in a limited way using restricted mediums. Section 5 IFE Strengths weights Rating Weighted score Suppliers Leading pharmaceutical 0.13 4 .52 Brand strength 0.1 4 .4 Dedicated employees 0.05 4 .2 Quick decision making 0.01 3 .03 3 business units 0.04 4 .16 Strong distribution 0.03 3 .09 Strong financial turnover 0.1 4 .4 Online store 0.17 3 .51 Advantage card 0.13 3 .39 Weakness Mainly a pharmacy 0.05 1 .05 Failed expansion in US 0.15 1 .15 Illegal practices 0.04 1 .04 Marketing has legal bounds 0 2 0 2.94 Major weakness1, minor weakness 2 , minor strength 3, major strength 4 The IFE matrix shows a total of 294. This figure is well above2.5 which means that the firm has strengths which are more than the weaknesses. This means that the firm has potential to grow and sustain itself in a competitive environment. Moreover, the firm has the ability to fight the threats posed by the environment and it also has the resources to avail the opportunities that are open to it. However, the firm is not doing so and thus the EFE is below average. The firm needs to utilize its strengths appropriately so that it can improve itself. This can be done when the firm reevaluates itself and assess its strengths and weaknesses. For instance, even though the firm is a leading pharmaceutical and has a good brand strength, it is not doing much to cash this and fight the competition that Tesco and Asda is posing for it. Moreover, even though the firm has dedicated employees, it has not introduced many marketing strategies which the employees could help become a success. Hence the firm should evaluate its strategies and recognize its strengths. This will help in fighting the environmental threats and availing the opportunities thereby helping it to grow and sustain its competitive advantage. Section 6 Conclusion Alliance Boots has a strong brand and customers are loyal however, the trends of shopping are changing. Since the recession has taken place, people work more hours and prefer shopping in a one stop shop. Competition like Tesco and Asda are making things difficult for Boots. The firm has strong internal strengths and the ability to fight through the threats the environment poses for it. However, it is currently not doing much. If such a situation persists, the firm may end up losing its top position in the industry as other takeover its market share. Recommendations. Alliance Boots should think of its long term survival and diversify into other commodities like beauty etc along with groceries and home appliances etc. they should focus on becoming a one stop shop unit. This will enable the firm to compete in the industry. Moreover, it should improve its integrated marketing communications and be more interactive with consumers. It should also focus on expansion plans in markets like China and India which are developing and have a lot of potential. This is because the UK market may be saturated in the future as competition stiffens. The firm should also utilize its strength of relations with pharmacies and doctors and keep giving them incentives so that they remain loyal to boots. Boots may also vertically integrate and open hospitals, have ambulances, sponsored clinics for doctors, finance research and development. Moreover it could merge with Asda and pose as a tougher competition for Tesco. Lastly, Boots should build its competitive edge by marketing itself and retaining the brand image that it currently has. It should have in house clinics etc and at the same time specialize into cosmetology by giving beauty advises etc which would be different from competition. References Schultz D and Philip, J 1999, “Integrated Marketing Communications in U.S. Advertising Agencies: An Explanatory Study,” Journal of Advertising Research vol.37, pp. 7–18. Maddox, K 2004, “Special Report: Integrated Marketing Success Stories,” accessed on 21st Nov 2009, available at: http://www.btobonline.com. Fill, C 2003, Integrated Marketing Communications, Butterworth-Heinemann High Beam Research 2008, Alliance Boots: New Leadership, New Directions. Accessed on 20th Nov 2009, available at: http://www.highbeam.com/doc/1G1-184853321.html Alliance Boots 2009. Accessed on 21st Nov 2009, available at: www.allianceboots.com. Tesco 2009, accessed on 23rd Nov 2009, available at” www.tesco.com KFC entry in China Macro environment After failed attempts to expand in the US KFC needs to expand in a market which has a rising demand for fast-food. In the US the economic downturn played a negative role in the growth of the china and resulted in losses. Several restaurants have been closed in the US. Thus KFC needs a more reliable market where the repercussions of the recession are not that severe (Asiaone Business 2009). China is a growing economy and the eating trends of the people are changing. This poses as a prospective market and thus its external environment needs to be analyzed. Pest Political/Legal The political conditions of China are stable and safe for expansion. The government restricts ownership of land, thus the firm has to consider franchising as an option. This will be better for the firm as other hurdles like language will be covered. Moreover, as US is suffering from obesity issues especially caused by the fast-food industry, China has become quite strict regarding the quality of the products used. Thus the firm has to be very careful as to the kind of oil it uses to produce the KFC products. the government makes sure that the raw materials used are run through quality checks and made sure that they are not harmful for consumption and don’t cause obesity. The government has become very health conscious and encourages healthy products thus KFC has to make sure that the products tat are sold in the market are healthy and don’t cause obesity issues. Economic The economic conditions globally have declined. Thus it has had its repercussions on China as well. However, the economy has not been as affected by the recession as the US has been (Morlock, 1992). The economy is doing better than most countries and the purchasing power of the common man has decreased. However, another niche has downscaled their entertainment and is now buying fast-food instead of going to fancy restaurants. Thus the sales are expected to increase in the recession period. Thus the economic conditions are good for an expansion in China. However, the consumers are price conscious and they like to spend well (Asiaone Business 2009). Thus they are looking for value meals. People like to carry cash and there is no trend of credit cards. This means that the restaurants can’t have credit card systems and they should have facilities for cash payments only. This trend is different from other developing countries where it is becoming an essential part of lifestyle. Social There is a changing trend amongst the people for women to work. Thus more people like to eat in restaurants and like to save their time by eating out in fast food chains. This according to Mellahi et al. (2002) gives firms like KFC an opportunity to venture the market. Moreover, the teenagers are influenced by the American way of living and like to adopt their eating habits. Thus there is a trend among the teenagers to eat fast-food and thus they welcome the change from their traditional food. The people in China are family oriented and like to eat together. Thus usually they come with their families to eat and like to enjoy the good taste and atmosphere of the restaurant. Overall the society is traditional and they like to eat their traditional cuisines (Asiaone Business 2009). They like spices and herbs and have a good taste for food. However, generally people are health conscious and like to eat healthy food. Technological The technological advancement in China is very good. As per Petersen and Welch (2000), the technology here can be compared to any technology worldwide. The internet is well developed and people like to use it very often. This gives way to the use of loyalty cards and integrated marketing solutions to grow customer loyalty. Such technology will help retain customers which is very essential in the industry. This is because the industry is very competitive in China. Thus as Owens (2006) suggests, using technology in such a manner will help KFC attain competitive advantage. Technology can also be used to update restaurant operations and to communicate the supply, restaurants and distribution etc. moreover, there is a new trend for Call Centers. The call centers are cheap and reasonable. As per Park and Sternquist (2008), they can thus be used to develop home delivery systems and to grow business via home delivery system. The telephone sector has also developed in the country thus marketing can be conducted via phone using sms and order delivery can also be conducted. Moreover, the delivery fleet will also be well coordinated when they are given mobile phones as a means of communication. Market development strategies KFC is a very well known brand. Throughout the world it has chains and it sells chicken having more or less identical products with little variation as per the individual market. KFC is well known for its fried products. Their crispy chicken and their Zinger burger are sold with success everywhere. The recipe is the same and the same product is accepted everywhere. Thus Park and Sternquist (2008) suggest that when KFC enters a market it does not change this product instead ventures those parts of the market which would accept this product willingly. China is an avid chicken eater. Thus the firm doesn’t have to change its product range for the market. Moreover, the market is influenced by the western culture and they seek to eat the American way with trendy restaurants and fast food joints. Moreover, the lifestyles of the people is becoming fast as they work longer hours and have both the male and female working. Thus they want to experience eating quick easy meals which is available at KFC (Asiaone Business 2009). KFC brings with it a western culture which they welcome. Adding to it, chicken is loved by them and they are willing to try it out. Their changing lifestyles accept the fast paced eating system. Even the restaurant environment is identical globally. The same color scheme and style of serving is observed everywhere. Even in China, when the firm enters, it should eater with the same product range that it has successfully launched in other parts of the world and at the same time, it should have the same aura in the restaurants. The atmosphere should be trendy and friendly everywhere so that the overall experience is welcoming. Thus with such products and the restaurant environment, KFC should seek those markets which would be receptive towards such products, services and environment. Product development strategies Keeping in mind the culture of the country, the firm should incorporate it in their products (Quinn, 2000). The product taste should be changed as per the needs of the market. In some regions of China, spicy food is preferred thus in those areas cities the restaurants should have spicier options also. The people of China are family oriented. Thus the firm should keep this in mind and the products should be altered accordingly. Thus the product ranges should have family deals and bucket deals etc which encourage families to come in and at the same time, help the customers save. Moreover, the products should be healthier and thus the main products should also have sidelines like salad and soups etc which would also attract the more health conscious customers (Asiaone Business 2009). Take away should also be developed as the Chinese are family oriented and like to stay at home. Since there is a changing trend for women also to work, many customers now like to eat breakfast out of home. Thus as Luthra (2000) suggests, keeping this in mind, KFC should also have breakfast options and grow business hence. Moreover, children play a vital role and thus there should be play areas and Chicky meals also in every restaurant. Strategy selection Product development strategy is better as competition in the market is increasing and the strategy of market development has failed in the US. The trends changed in the US which affected the sales of KFC. Thus it will be more viable if the products are designed as per the need of the market so that the competition can’t get ahead and at the same time the firm can satisfy its customers. References Asiaone Business 2009, KFC plans China expansion as US sales fall, accessed on 23rd Nov 2009, available at: http://www.asiaone.com/Business/News/Story/A1Story20090617-149141.html Luthra, M. N. (2000). ‘Market Entry Effects of Large Format Retailers: A Stakeholder Analysis’, International Journal of Retail and Distribution Management, 28/4–5: 139–54. Morlock, W. (1992). ‘Saturation and Internationalization: The Future of Grocery Retailing in the UK’, International Journal of Retail and Distribution Management, 20/3: 33–9. Mellahi, K., Jackson, T. P., and Sparks, L. (2002). ‘Retail Internationalization and Retail Owens, M. (2006). ‘New Directions for International Retail Joint Venture Research’, International Review of Retail, Distribution and Consumer Research, 16/2: 159–79. Park, Y and Sternquist, B 2008, The global retailers strategic proposition and choice of entry mode, International Journal of Retail & Distribution Management, vol. 36, no. 4, pp. 281 – 299 Petersen, B., and Welch, L. S. (2000). ‘International Retailing Operations: Downstream Entry and Expansion via Franchising’, International Business Review, 9: 479–96. Quinn, B. (2000). ‘International Retailers’ Strategic Response to Market Withdrawal’, 7th International Conference on Recent Advances in Retailing and Services Science, Lisbon, 7–10, p. 5. References Maxipedia 2009, accessed on 27th Nov 2009, available at: http://www.maxi-pedia.com/IFE+EFE+matrix+internal+factor+evaluation Read More