Marks and Spencers Competitive Advantage - Essay Example

Marks and Spencer’s competitive advantage Strategies are described as the match that business organisations make between internal resources and skills and various opportunities and risks that are created by the external environment of those organisations (Grant, 2001, p.114). The notion of strategic management is related to the importance of managers with respect to various business strategies. Strategic management is related to the complexity which arises from ambiguous as well as non-routine circumstances organisation-wide. It is an important management technique for the managers to control the available resources of the business organisation on a day-to-day basis for the development of the company. Since strategic management is related to the difficult and complex issues of a business organisation under consideration; therefore these issues also include business decisions and judgments. These decisions and judgments are based on the conceptualisation of complex issues (Johnson et al., 2007, p.11). The business-level strategy of the company is an important issue of strategic management for any organisation which helps the company to acquire greater competitive advantage in the market. The business-level strategies comprise of two sets. The first set of strategy is related to the ‘bases of competitive strategy’. This set of strategies included competitive business strategies related to prices of goods and services, product and quality differentiation and hybrid and focus. The second set of strategies includes business strategies which are related to the aim of the business organisation to achieve competitive advantage. These strategies include sustainability strategies, hypercompetitive strategies and collaboration strategies. (Johnson et al., 2007, pp.221-222). Competitive strategy is regarded as the most important element which is applied by business organisations to acquire greater competitive advantage in the market. This strategy includes pricing strategies, differentiation strategies etc. to achieve the desired goal. These strategies affect the preference and choice patterns of customers and thus help the business unit to reach its desired destination of higher competitive advantage (Johnson et al., 2007, p.224). Competitive advantage is acquired by business units through effective differentiation of products based on proper environmental and societal conditions and performances (Charter et al., n.d., p.20). Marks & Spencer: In the year 1884 Marks & Spencer was established. At this time the name of the company was Marks. In 1894 the company became Marks & Spencer as a result of the partnership with the Spencer. Since its establishment it is regarded as the leader in the industry. It became the most dominant firm in the British high streets by providing shoppers with high quality and value clothing by getting unrivalled by its competitors. Marks & Spencer is considered as largest high profile Retail Company of the country which sells varieties of goods and services like cloths, furniture, food items, loan services and many more. This paper is aimed at providing a critical analysis of the competitive advantage enjoyed by Marks & Spencer, the world’s most renowned retailer (Collier and Johnson, 2005, p.503), over the past years as well as recent years and thus evaluating the change in initiative mounted in recent years. Competitive advantage and Marks & Spencer: Marks & Spencer enjoyed competitive advantage from the very beginning of its establishment. Mainly since the early half of 1990 the company started enjoying greater level of competitive and business advantage in the markets of retail industry in the United Kingdom. There are various reasons which have been helping the company since a long time to gain greater amounts of competitive advantage in the market. Most important reasons have been greater reputation with customers, very good business relationship with the suppliers of various products and services, and the greatest level of caliber as well as greatest professional level of commitment of the work force in the company (Pearce, 2003, p.11). Various internal as well as external business policies and strategies have been applied by the company during the past and the present years. These have given the company greater opportunity to enjoy the competitive advantage. One of the most important internal business policies has been to give ‘good meals to the employees at nominal prices’ (Pearce, 2003, p.11). This policy has helped the employees to work effectively in the organisation and also to gain greater interests in working with the company. This strategic business management theory of satisfying the employees has successfully been applied by Marks & Spencer in the past as well as at the present. Again the company has used the shareholder value approach very successfully as one of the most important strategic business model. This strategy has been helping the company in comparing the cost of giving subsidised meal to the employees ‘with the expected net present value of the savings from reduced staff turnover’ (Pearce, 2003, p.11). Due to these policies the net balance of the company has been positive which has increased the level of transaction of the company that enhanced the shareholder value in the company (Pearce, 2003, p.11). In the 1990s the company started to apply the shareholder value model more intensely. The main reason for the company to make a shift in business policy during this time was the fact that the comparatively mature business of the company could not help it gain double-digit income growth rate in the retail market of the company. This failure of the company caused the business organisation to lose ‘support in the equity price premium’ in the country’s stock market. As a result of this failure of the business strategy, the company started to put pressure on the supply chain. During this time the company implemented various business policies to achieve greater margin on sales of various products and services. This strategic business model helped the company to achieve highest sales margin in the early 1998. In this way Marks & Spencer achieved a competitive advantage in the market for retail goods and services of the country (Pearce, 2003, p.11). But during the late 1990s this shareholder value model caused serious damage for the company by reducing the profit margin as well as the prices of shares of the company. These reductions in profit earnings and share prices caused the company to lose the competitive advantage in the market. The most important reason behind reducing the competitive advantage of the company has been the reduction in the shareholder value in the late 1990s (Pearce, 2003, pp.11-12). Marks & Spencer achieved the desired level of competitive advantage by successfully establishing the greater reputation for quality of goods and services which are sold by the company. Marks & Spencer has been considered in the retail market of the UK as the best retailer due to its strategy of selling best quality goods and services since its beginning. Along with this business strategy, the company also applied the strategy of fair dealing with the suppliers as well as with customers from the beginning of its business. This particular strategy has helped the company to expand the traditional class divisions in the retailing industry of the country (Differentiation Advantage, n.d., p.283). The company has successfully used the Porter’s five forces for achieving greater amounts of competitive advantage. Five forces are looked at five key areas which are named as ‘the threat of entry’, ‘the power of buyers, ‘the power of suppliers’, the ‘threat of substitutes’, and ‘competitive rivalry’ (Johnson et al, 2007, pp. 59-60). The threat of entry: The company has been able to gain greater customers’ loyalty which helps the company to create barriers to entry for new entrants into the retail market. Customers believe that the company is an expert in the retail business which has also been the most important reason behind the entry barriers in the market (Squires, n.d.). The power of buyers: Marks & Spencer is the biggest purchaser of the retail goods and services from various suppliers in the country. In the clothing industry manufacturers face strong customer power while selling to retail chains like Marks and Spencer (Proctor, 2000, p. 105). The power of suppliers: The company patronized British suppliers and this great support of the company has helped the suppliers to gain greater power to negotiate with Marks & Spencer. However this is becoming clear to the company that they need to diversify with respect to the country of the suppliers (Worth, 2007, p. 113). The threat of substitutes: Availability of large number of substitutes causes a business organisation to lose the customers’ base as customers shift to new brands of products and/or services. Tesco and Sensbury are the two most significant substitute retail companies of the country which are creating great threat for the Marks & Spencer (Seth & Randall, 2001, p. 32). The competitive rivalry: Since, different companies have entered over time into the retail sector of the country with same quality of goods and services, but at much lower and affordable prices as well as up-to-date fashion, Marks & Spencer started to face great competitive rivalry from these new entrants. In the area of achieving greatest market share the Marks & Spencer has failed considerably due to selling same quality and quantity of goods and services to customers at comparatively higher prices than its competitors. However to deal with competition they have in fact included 400 branded products across their UK stores. new food brands are also ready to enter. However the recession caused a deep blow on the company’s business (Proctor, 2000; Wan, 2009). The company has put less emphasis on delivering goods and services to customers in best possible ways. This has caused the company to lose the competitive advantage in the market and also to gain higher amounts of profit from selling these goods and services. Rivals of this company have started to sell better quality, high-fashionable garments to customers at much lower prices compared to Marks & Spencer which has caused great reduction in the customer base of the company in the early 2000s. The company has failed considerably to up-date its stock of products as well as to improve the procedures on the company’s inbound logistic, suppliers, operations, layout and store designing. The wrong business policy of the company of purchasing products from domestic suppliers only has negatively affected the competitive advantage of the company. In this context the company might be suggested to purchase products and services from international suppliers also to save the cost of purchasing those products and also to sell those products and services at lower prices to the customers (Proctor, 2000; Wan, 2009). Innovation on brand health as well as momentum in this field has been helping the company acquire greater market share and competitive advantage since a long time. In the beginning the company started its business activity in the Leeds Kirkgate market of the United Kingdom. At present the brand of Marks & Spencer is considered as a chain of more than 450 stores in the country and almost 150 stores in other countries. Different types of products and services are sold to more than 15 million people every week across the country which gives the company a sale of £7.8 billion in the year 2006. Clothing for men and women comprise the most popular brands of the company. Although at the beginning of the 21st century the company has lost momentum in terms of acquiring the market for retail products and services as well as to enjoy greater competitive advantage, various improvements have been made by the company with the help of several strategic policies. Diagnoses have been made on the brand health of the company which has helped the company gain greater competitive advantage in the market. The signature of the brand has shown that the perceived presence of the brand of the company is very strong (Smith and Davies, n.d.). In terms of analysis of the performance of the company and impacts on consumer choices of various brands sold by the company, one may say that clothing brands of the company have failed to perform in terms of improving quality and style of products and services. As a result of this failure of Marks & Spencer, other competitive brands have captured the market in the competitive set. These events have ruined the reputation and the level of competitive advantage of the company to some extent in the year 2004. As a result of these negative effects on the business of the company, Stuart Rose, the newly appointed Chief Executive of 2004, implemented a policy of ‘with the main aim of defending and revolutionising the Marks & Spencer brand’ (Smith and Davies, n.d.). This strategic policy was to get back to the basics of the company stores. Along with this policy, several other policies have been taken during this time. Most significant policy lies in improving the quality of products, mainly garments, to make these products much more stylish so that they become more appealing to the consumers. The company also re-vamped the available stores during this time. Also a new campaign for advertisement of different brands of products has been launched during this time. The name of the ad campaign was ‘Your M&S’. This advertisement policy has been described as the most instrumental support of the turnaround of various brands of the company. As a result of successful implementation of these business strategies greater levels of profits have been acquired by the company during this time. Large British brands such as Twiggy, Erin O’Connor, Shirley Bassey etc. have been receiving greater attention from the consumers during this time (Smith and Davies, n.d.). Sales of products and brands increased significantly during this time as a result of implementation of those business strategies as main business policies. Only due to advertisement campaigns there has been 350 percent increase in the sale of chocolate pudding. This advertisement campaign encouraged 18 million new customers to visit stores in a year and this resulted in an increase in the profits earned by the company from more than £505 million to more than £745 million. The most important product differentiation strategy of the brand has been differentiation in terms of quality of brands of products and services and differentiation of styles of products. These strategies remained the most significant strength of the Marks & Spencer. In February, 2007, Marks & Spencer has been awarded 3rd place in the ‘Top Of The Shops’ list in the United Kingdom, because of greater recognition of the company’s strong customer service as well as products. Large number of people in the country has been satisfied over the passage of time by the brands and products of Marks & Spencer. In the year 2010, the brand has been rewarded as the ‘classic’ brand compared to its name tag ‘defender’ brand which has been given to the brand in 2006. With the help of quality improvement and advertising strategies the company has been able to re-invent itself and also get the momentum back in favour of greater competitive advantage and greater share of the retail market of the country (Smith and Davies, n.d.). Marks & Spencer also applied the strategic management policy of effective management of risk within the organisational structure. By internalising designs of products in the fashion market of the country the company gained greater amount of competitive advantage through greater product differentiation strategy. With the emergence of global markets both hostility and competition in the fashion retail industry all over the world. According to Omera Khan (n.d.), in this market “unpredictable consumer demands, the importance of quick response to change in the market place and the increasing competition from low-labour cost country make formidable conditions for conducting business” (Khan, n.d., p.75). In the clothing industry of the United Kingdom, there has been greater amount of competition from retail firms which have been selling products at lower prices by importing them from countries having low cost of production. This has been creating great problems for retailers such as Marks & Spencer which have been selling local garments at relatively higher prices. This fact has caused Marks & Spencer to terminate its agreements with the local suppliers and to get the supply of products from overseas production companies. But this policy hampered the reputation of the company in the retail market of the country due to reduction in the quality of products sold by the company (Khan, n.d., p.75). Another important problem was associated with this strategy which was providing time-to-time supply of products to the customers. Availability of large number of suppliers and manufacturers of same types of products, such as clothing products, have been augmenting both the problems to a great extent. Under these circumstances, in order to sustain the competitive advantage of the business organisation, Marks & Spencer implemented a new strategy and structure also for the purpose of accelerating the growth of the company. Marks & Spencer consolidated with the key suppliers of products for the purpose of concentrating on small but most important number of suppliers. This concentration helped the company develop a close business and personal relationship with the key suppliers. At present the company has shifted 75 percent of their supply requirement to the overseas supplies and has retained the remaining 25 percent in the country. Marks & Spencer has also adopted a business strategy of investing directly or indirectly in the production structure of its overseas suppliers and also in their management processes of operation as well as supply risk (Khan, n.d., p.75). The management strategy applied by Marks & Spencer during this time to outsource the production of branded products and services has helped the country to acquire significant amount of share in UK’s retail market. However, there occurred significant rise in the volume of corporate exposure to various unpredicted events, such as delay in supply of products and shortfall of quantity of products supplied. In this situation the company has adopted a risk reducing strategy which has been implemented by focusing on selection of suppliers and also on highlighting the relationship with these selected suppliers. These strategies have been regarded as the most important strategies for reducing the level of risk in the existing supply chain of the company (Khan, n.d., p.76). Marks & Spencer has recently adopted business strategy of reducing the number of suppliers of products and services in the United Kingdom and to increase it overseas. Strategy has also been taken to improve the relationship with the overseas suppliers more closely compared to the domestic suppliers. The company has also reduced the teams of clothing designers, colourists as well as developers across the entire clothing division. According to Omera Khan (n.d.), “the company has a strong commitment to creativity and this coupled with close linkages to technology and consumers, enables the company to spot new trends and capitalise on market needs quickly” (Khan, n.d., p.78). The strategy of in-house designing of clothing products has been able to provide the company with greater reliance on the quality control of products and also in reducing the level of risk in the variation in quality of outsourced products and services. Greater investments in the field of designing products have been providing the company greater amount of control over the risks related to the quality and design of products. These strategies have affected the operational as well as supply related risks. These later types of risks have been related to the risks ‘such as the logistics of merchandise into stores on time’. Marks & Spencer has been investing greater amount of resources in research and developmental projects which have provided the company, over the passage of time, significant and good reputation in terms of ‘challenging the conventional and developing revolutionary products to make customer’s lives easier’(Khan, n.d., p.78). Again the business strategy of co-operating with the suppliers, mainly overseas, with respect to design and technology in order to increase the quality of products by giving advises to the suppliers regarding the fabrics, dyes as well as finishing of those products (Khan, n.d., p. 78). Marks & Spencer has been in a disadvantageous position in the United Kingdom due to existence of large number of competitive retail companies in the country. At the beginning the company has been running under a policy of more production led growth, rather than more design led growth. But in recent years’ adoption of strategy of greater collaboration with the Tier I and Tier II suppliers of various products and services have helped the business organisation to attain greater share of the market and larger amounts of competitive advantage. The resultant increment in the suppliers’ base of the country has given the company a great chance to use the product differentiation strategy (in respect to differentiation of designing of products). Apart from suppliers of United Kingdom, suppliers of Sri Lanka, Bangladesh, China, Mauritius etc. have been helping the company to increase the implementation of product differentiation strategy to a great extent. Some of countries of suppliers of the company, such as Mauritius, do not have the export-duty charges and restrictions on amounts of exports like quota. These have been helping the company to acquire greater volume of products and services from these comparatively more open-economies which are indeed increasing the competitive advantage and market share of this company. These particular sources of product supplies are not available to significant extent to the rival retail companies of Marks & Spencer which is indeed helping the Marks & Spencer to increase their customers’ base and also to reduce the risk in country’s retail market. Again greater investments in the operation and management of suppliers have been helping the company to maximise the level of operational efficiency of the suppliers and thus of their own (Khan, n.d., pp.78-79). Again, by building up a significant relationship with the suppliers several types of risks have been mitigated by the company in recent years. These risks have been related to: Lack of communication among the company, suppliers of raw materials and clothing manufacturers Lack of effective communication between the company and the suppliers Lack of capability in the supply base of the company Lack of various resources in the supply base Political unstable conditions in the supply base Lack of proper transportation as well as logistics of goods Lack of skilled designs and improved technologies at the supply base of the company. The reduction in these risks have been helping the company to increase the performance in the retail sector of the country as well as improving the standard of products sold by the company in the country, in particular, and in the world, in general. The company has also adopted a business strategy of increasing the customer awareness of various products and services which are sold by the company, along with various distinguished features and effectiveness of those products and services. All these have been providing the company greater amounts of competitive advantage in recent years compared to the past inspite of greater competition in the retail industry of the country (Khan, n.d., pp.78-80). In the year 2009, Marks & Spencer adopted all these policies to attain greater competitive advantage in the retail market (Evolution of corporate sustainability practices Perspectives from the UK, US and Canada, 2010, p.4). Conclusion: Marks & Spencer is enjoying a significant level of competitive advantage in the retail sector of the country which has been achieved by the company through various management strategies. These strategies are related to the aim of achieving greater advantage in the competitive market for the company and also with respect to achieving greater market share or increasing the customers’ base. The company has faced lot of variations in the level of competitive advantage in the market. However, effective strategic policies have helped the company to avoid all those obstacles and to become the biggest retailer of the United Kingdom. References: 1. Charter, M. et al., (n.d.), Marketing and sustainability, BRASS, available at: http://cfsd.org.uk/smart-know-net/smart-know-net.pdf (accessed on March 12, 2012) 2. Collier, N. and Johnson, G. (2005), CASE TEACHING NOTES Marks & Spencer, Pearson Education Limited, available at: http://pgsm.co.uk/members/teaching/strategic/m_s.pdf (accessed on March 12, 2012) 3. Dransfield, R. (2001), Corporate strategy, UK: Heinemann 4. Evolution of corporate sustainability practices: Perspectives from the UK, US and Canada, (2010), AICPA, CICA and CIMA research study, available at: http://www.cica.ca/research-and-guidance/mda-and-business-reporting/other-performance-reporting----publications/item45663.pdf (accessed on March 12, 2012) 5. Grant, R. M. 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