Competitive Advantage - Whole Foods Market Stores - Case Study Example

Step1: Competitive advantage There are many successful organizations in the market and these have viable strategies in their operations which can hardly be imitated by their rival competitors. This is commonly known as competitive advantage (Porter, 1985). According to Porter’s model of competitive advantage, it can be observed that there are mainly two sources of competitive advantage which include the following: cost advantage and differentiation. According to Porter’s generic studies, ‘differentiation’ is when a firm seeks to be unique in the industry while ‘cost advantage’ is where the firm seeks to be a low producer while maintaining quality. A closer analysis of the case study of Whole Foods shows that it has adopted a differentiation strategy. According to Harasta & Hoffman (2010), differentiation is a business strategy that seeks to build competitive advantage with its product or service by having it different from the other alternative products. This entails that other competitors may find it difficult to offer the market offering. This is the strategy that has been adopted by Whole Foods explained below. The company has differentiated itself from the other competitors by focussing on quality as excellence and innovation that allows them to charge a premium price for premium products. For instance, health conscious people have begun to realise the importance of consuming organic and natural foods and these are mostly found at Whole Foods Market stores. Whole Foods is the world’s leading retailer of natural and organic foods and has 289 stores, 273 stores in 38 states in the US and 6 stores in Canada and 5 stores in UK (Harasta & Hoffman, 2010). All these stores have sustained a competitive advantage by virtue of being unique. Other retail outlets do not specifically focus on strictly organic and natural products like Whole Foods and this is the reason why it has managed to sustain its competitiveness. Rationale for this strategy Essentially, differentiation strategy requires businesses to have sustainable advantages that enable them to provide the customers with something uniquely valuable to them (Harasta & Hoffman, 2010). In case of Whole Foods, this strategy is justifiable because the products it offers are perceived to be of high value by the buyers and this is the reason why they continue to buy them even though they have premium prices. In most cases, buyers purchase products that are believed to be of great value to them. It can also be seen that differentiated products in the market are unique and they can be hardly imitated by other rival competitors. By specialising on selling natural and organic products, Whole Foods has managed to create a sustained competitive advantage since there are few alternative products to the buyers that can match the goods offered by this company in question. Premium prices are also justifiable as a result of the fact that products offered are unique and of great value to the customers. Maintaining superior value of the products offered is advantageous in that loyalty among the customers is likely to be created. New customers are also likely to be attracted which gives the firm a competitive advantage in the long run. Recommendation for new competitive strategy For a new competitive advantage strategy, it is recommended that Whole Foods management should consider possibilities of market development. This is a strategy for business growth by identifying and developing new market segments for current products of the firm (Kotler & Armstrong, 2010). As noted from the case study, Whole Foods has been leveraging its competitive advantage on quality as well as charging premium prices for unique products. The company can also target other segments of the market comprising on low income earners and peg the prices accordingly. This will help to boost its sales and gain a competitive advantage since it can attract more buyers who will positively contribute towards its long term sustainability. Step 2 The forces that determine the profitability of the company are very important in its strategy formulation (Harasta & Hoffman, 2010). These contending forces are also known as Porter’s five forces model which comprises of the following factors: barriers to entry by competitors, threat of substitute, bargaining powers of buyers, bargaining powers of suppliers and rivalry among the existing players (http://www.12manage.com/methods_porter_five_forces.html). As such, this section of the paper seeks to summarise how these contending factors can impact on strategy formulation by Whole Foods group. As discussed above, this company has managed to gain a competitive advantage as a result of the differentiation strategy it has adopted in its operations. However, this is not an end in itself since there are different changes that take place in the environment in which the organization operates. As such, these changes can necessitate change of strategy as discussed below. Barriers to entry There is a possibility of entrance of other low cost goods providers which may lead to growing competition. This can negatively impact on the operations of Whole Foods Market. As noted from the case, there are also other specialty stores penetrating this market and they offer similar products that have lower prices and these lead to competition particularly to Whole Foods which has been enjoying high sales by virtue of its uniqueness. Substitutes The probability of a substitute penetrating the market is possible as evident from the case study and this can affect the competitive advantage of Whole Foods Markets. Low cost organic products are beginning to surface in the market and this can force the customers to switch to other lower priced brand. Bargaining powers of buyers This depends on the buyers’ ability to influence the price. As noted, the financial crisis has affected the buying power of the buyers and this is likely to force the prices down since the buyers have less disposable income. This compels Whole Foods Market to ensure that it puts in place other strategies that can attract the customers to its products. When buyers have less disposable income, they can force the prices of different products down. Bargaining powers of suppliers The bargaining powers of suppliers depend on how strong the suppliers are in terms of pegging the prices of their products. If there are few suppliers, they can have the autonomy to peg high prices for the products they supply and if there are more suppliers, the price is likely to be lower. This can impact Whole Foods Market which can have little influence on the prices charged for products supplied from the producers such as farmers. Rivalry among competitors The aspect of competition needs to be taken into consideration by Whole Foods. According to the case study, the company is viewed as the world’s best retail store that specializes in retailing purely organic foods with stores in America, Canada and the United Kingdom. However, it has been observed that there are also competitors emerging in this industry and these pose a serious threat to the viability of the firm. Rivalry among the existing players is a major challenge which entails that the company should implement other strategies that can help it to remain afloat in competitive environments. Conclusion Over and above, it can be seen that a company need to gain a competitive advantage in order to operate viably. As illustrated by the case of Whole Foods, differentiation strategy is very effective since it gives the company a competitive advantage by virtue of offering unique products. However, this strategy is not an end in itself since there is need for constant review of the strategies so as to be better positioned to deal with other changes that can be encountered in the operations of the firm. This can be achieved through the use of Porter’s five forces to establish the lucrativeness of the industry. References Harasta, P & Hoffman, A.N. (2010). Whole Foods Market 2010: How to grow in an increasingly competitive market. Bentley University and Rotterdam School of Management. Kotler, P. & Armstrong, G. (2010). Principles of Marketing. CT: Person. Pearce, J.A & ROBINSON, R.B. (2010). STRATEGIC MANAGEMENT. Planning for Domestic & Global Competition. 13th Edition. J. Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press, New York: NY. Porter’s Five Forces Model 2012, viewed 14 April, 2014, Read More