John Lewis: Segmenting, Targeting and Positioning Strategy - Essay Example

? CRITICAL SUCCESS FACTOR REPORT Table of Contents Introduction 3 John Lewis: A Brief Overview 3 Analysis 4 Competitor Analysis 5 Macro Environment Analysis 6 Political 6 Economical 7 Social 7 Technological 8 Segmenting, Targeting and Positioning Strategy 8 Role of Price 9 Communication Strategy 11 Customer Service 12 References 14 Introduction This report will offer insights about the John Lewis departmental store. It will primarily emphasize on the business opportunities of a bathroom manufacturing company in UK. Through this analysis, the report will try to shed light on the purchasing behaviour of customers who prefers shopping from John Lewis. Competitor analysis for the British departmental store chain will also be a vital portion of this report. Apart from that, the study will also analyze the macro environment (political, economic, social, and technological) of Great Britain. Important aspects such as communication strategy, pricing strategy and customer services strategy need to be designed carefully to sustain the competition in the market. This report will examine each of these strategies required for the bathroom manufacturing company. The next half of the report will offer a brief introduction of the company. John Lewis: A Brief Overview John Lewis can be referred to as a chain of departmental stores that operates throughout the United Kingdom (UK). It was established by John Lewis in the year 1864. Presently it is headquartered in London, United Kingdom. Initially the business started as single store operator, but during the year 1920 it established departmental store chain model through John Lewis Partnership (Davidmann, n.d). The partnership model emphasize on ownership of employee and their contribution as stakeholder to the departmental store chain. There are more than thirty eight thousand people working in the departmental store chain and each of them acts as a partner to the company (McCallion, 2010). The group has been ranked as one of the top five departmental store chains of Great Britain. This British departmental store chain has already opened thirty seven outlets and is planning to open few more within next 2 years. Customer Analysis John Lewis has established itself as premium departmental store chain in last 146 years. This departmental store has become a “cool” shopping destination for many people. Oxford outlet of the chain was founded in middle England in order to provide shopping solution to customers belonging to the central part of Britain. Marks & Spencer (M&S) is another favourite shopping destination for many people in Great Britain and is a strong competitor for John Lewis. Customers believe the ambience of the departmental store (John Lewis) chain is appealing and they like to spend more time in the outlet. Customers feel that lighting system of the stores is designed in such a way that it highlights each product separately. Any person entering the store can easily identify his/her favourite brand, thereby making the purchase decision easier. John Lewis has a customer base of people who like to shop for branded items. People belonging to higher income and middle income group are the major customers of the departmental store chain. Married couples and families also visit this departmental store chain to purchase different items. Customers prefer to shop for stylish items such as watch, designer clothes, bathroom items etc. Many customers perceive that after sales service is a critical factor behind the success story of any retail outlet. Employees working inside the stores are the greatest asset to the company. Employees own a percentage of shares in group’s business and they also earn a yearly bonus. Customer friendly behaviour and prompt after sales service made this British departmental store chain a preferred shopping spot for many customers. John Lewis also provides home delivery services for bulky items. Hence customers like to shop in this departmental store chain for aforementioned reasons. Ambience, customer service and availability of branded product are the elements which influences buying behaviour of customers (Hardy, 2010). Competitor Analysis John Lewis has established a premier position for itself in departmental store industry. They face competition in the field of consumer durable manufacturing, furniture manufacturing, grocery supermarkets and textile manufacturing. ASDA Group, Marks & Spencer, Arcadia Group and Argos Limited are the major competitors for them. IKEA which specializes in furniture retailing has also entered in the competition to become UK’s best retail store chain. Sainsbury has also emerged as major competitor in recent years. John Lewis has outperformed other departmental stores in terms of yearly profit for the year 2007. This British departmental store chain charges high price on each of their item. This strategy works for their loyal customers but fails to capture price conscious customers. Many fashion groups like NEXT makes large profit although their sales volume is much smaller against John Lewis. Marks & Spencer has achieved double profit margin with respect to the vintage departmental stores. Sainsbury's has also achieved same level of profit from 20% lower sales volume than John Lewis. This premier British departmental store chain is facing competition from online retail stores like ebay, Boutiques.com and others. There are some negative aspects of partnership model maintained by this vintage departmental store chain. One of them is lack of funds to expand their business. Some of the competitors have expanded their business with more than 300 outlets (M&S) while John Lewis has opened only 37 outlets across Britain. Many customers prefer to shop directly from company owned independent shop (Wang, Bell, & Padmanabhan, 2009) to get price discount and other facilities like additional gift on every repeat purchase. Competitors like Mark & Spencer has strengths like wider distribution network (Narayanan, Raman, & Singh, 2002) high sales volume but they also have weakness like poor after sales service, and poor customer relationship management. IKEA has established itself as a best brand in furniture segment but caters to few segments only. Online stores have strength like offering product at a reasonable price, low supply chain management cost but on the contrary they have weakness in the form of low customer reliability. Other departmental stores have some common strength like wider distribution network and setting low price on each product but they fail to attract a brand conscious customer searching for quality product and looks for prompt after sales service and ambience in the shop (McCallion, 2010). Macro Environment Analysis Macro environment analysis mainly focuses on political, economical, social and technological issues of a particular country (Washington, 2006). Political Business function of any retail outlet is subject to change with respect to globalization (Lawlor, 2007). Government in United Kingdom supports foreign players to invest and diversify their business. For this reason, Many Retailer, departmental stores are planning to enter into British market via Foreign Direct Investment (FDI) (Chakrabarti, Subramanian, Meka, & Sudershan, 2012). Government of United Kingdom is doing investigation to fix price for certain products and they are mainly investigating profit earnings ratio of top four retail players. The departmental store chain charges premium price for their product and they might need to change pricing strategy due to ongoing price fixation issue. British Government has already slashed down corporate tax rate from 30% to 28% (Auerbach, Devereux, & Simpson, 2008). The tax policy will help this vintage departmental store chain to save huge amount of money. Economical Fuel cost has increased sharply within few years and that effect directly to the transportation cost of the departmental store chain. John Lewis has to increase prices to maintain the profit margin. Global credit crunch has impacted painfully to the sales volume of major retail outlets (Kamil, & Rai, 2010). Purchasing power of a customer decreases due to recession and they are giving importance to purchase low priced products. Financial services are playing safe in this economic condition and they restricted credit limit to different departmental stores. John Lewis charges high price for shopping items but the economic condition has created a rift for them to maintain premium pricing policy (Penn State’s College of Agricultural Sciences, 2007). Social British people are accustomed with global trends in terms of dressing, buying behaviour or lifestyle. They like to purchase fresh product with unique styling. They prefer to lead a healthy life and for this reason exercise kits, food items with low cholesterol level are quite popular in Britain. Many social organisations are raising their voice on global warming issues and increased carbon footprint in the country (Brown, Southworth, & Sarzynskithe, 2008). John Lewis needs to decrease carbon foot print level in their supply chain cycle. Online retail sales in Europe have increased more than 250 billion Euros and this signifies the popularity of online shopping. Many people prefer online shopping due to hectic lifestyle and lack of time. Online departmental store concept can be developed by the British departmental store chain. Technological Long queuing system is a disadvantage for departmental stores and customers prefer self checkout system which helps them to save time. Radio Frequency Identification Device or simply RFID (Li, Chen, & Ling, n.d.) is a new technical concept developed by Wall mart to control long standing quos in their store. This concept can be integrated within the supply chain cycle to save time. Automatic system is used to identify different objects inside the store. RFID can be used by John Lewis to increase efficiency level in terms of service and supply chain management. Implementation of Enterprise Resource Planning (ERP) to maintain customer database and other important business information are common phenomenon for large retail outlets (She, & Thuraisingham, 2007). The British departmental store chain needs to implement ERP in their supply chain management to cut down cost (Shilpa, 2008). Segmenting, Targeting and Positioning Strategy A business cannot fulfil demand of all customers due to lack of resources (Financial, Human Resource, Technology etc). For this reason every company needs to identify their potential customer segment. Segregating the customer group into smaller division with more or less common requirements and further filtering down customers in terms of their potential to purchase (Purchase Power, Urgency of requirement, Buying Behaviour) is known as segmenting and targeting. Perception of a brand in the mind of customer is known as positioning. When a bathroom manufacturing company wants to open a store inside John Lewis it means they are trying to offer their product with a better ambience. Customers visit this British departmental store to purchase three types of bathroom products. The products are Glass Bathroom Solution. 2- Laundry Bin. 3- Bathroom Furniture (John Lewis, 2012). John Lewis is known for offering branded and high priced product. People with higher income level, foreign tourists and also couples who can afford to purchase high priced bathroom equipments can be the segmented and targeted by any bathroom manufacturing company who wants to open their shop inside this departmental store. Targeting can be done on the basis of buying pattern of customers. Many customers like to purchase bathroom furniture from John Lewis due to their unique design. Generally price of bathroom furniture is much higher with respect to glass bathroom solution or laundry bins and for this reason a conscious buyer will do a lot of research before buying them. Any bathroom manufacturing company has the opportunity to create innovative design for bathroom furniture. They need to position themselves in terms of uniqueness in design of products and less space consumption. Few wandering customers can be targeted with low priced solutions like Glass Bathroom Solution and Laundry Bin (Starvish, 2011). Asian customers (Japanese, Chinese etc) prefer a bathroom with wooden flooring and wooden furniture. Bathroom manufacturing company can design their products with wooden furniture and wood coating according to the demand of Asian customers. Brand Equity of John Lewis will help the bathroom manufacturing company to position them in a unique way which is different from their competitors (Gregg, 2003). Role of Price Setting a price strategy is critical task for any company because it depends upon the available product mix. Standard price policy can not be implemented for all the products of a company. Organizations set a price of a product higher than any other competitor’s product and with this strategy they try to indicate quality of the product. This is known as premium pricing policy. Many new entrants adopt a different pricing strategy to capture market share. Sometimes they lower the price of products than that of the existing market competitors. This pricing strategy known as Penetration pricing is used by new entrants to attract customers. Any new company willing to open their bathroom shop inside John Lewis needs to select pricing strategy carefully. Pricing is sensitive with respect to guaranty period which is the reason why John Lewis charges a high after-sales service cost for a longer guaranty period. Bathrooms International is a British company that provides all type of bathroom related solutions and they can be a competitor for any new entrants. John Lewis does not have a wide spread distribution network and they try to earn high margin of profit from their 37 outlets across Britain. This is one of the reasons behind incorporating premium pricing technique. A bathroom manufacturing company which has decided to open pilot stores inside British departmental store chain needs to adopt premium pricing for three reasons. 1- Brand image of John Lewis gives a platform to the bathroom manufacturing company offering their product to customers with high income level. These customers are ready to pay high price for a quality product (Geylani, Hofstede, & Inman, 2005). 2- In the pilot phase they have the opportunity to customize their products like changing the design of bathroom furniture or glass bathroom solution. Any experiment needs high end research and development program. They need to increase their price to compensate research and development cost. Product innovation is required to stay in the market competition. 3- Bathrooms International is one of the major forces of the market and level of oligopolistic competition is low in British bathroom manufacturing market (Stahl II, 1989). Bathroom manufacturing company has the independence to select premium pricing due to low market competition. Communication Strategy Internet has become an effective communication medium within few years. Every company needs to select a well balanced communication mix to promote their product. Different elements of communication mix can be classified as Digital Marketing, Sales Promotion, Public Relation and Advertising (Fontenot, n.d.). Advertising means promoting a brand through television or billboards, posters, banners etc. This type of promotion helps to communicate the benefits of a particular product and has mass appeal. Cost incurred for each contact is low and for this reason many organization adopts this technique. They are planning to open a pilot shop inside John Lewis and at the initial stage they do not need to select advertising model for two reasons. 1-They are not targeting mass but selected set of customers (customers belong to higher income group and married couples with sufficient disposable income). Designing and executing an advertisement model (Above the line or Below the Line) require huge capital. They do not need to take such risk at the initial stage. Sales promotion (providing incentives to target customer on immediate purchase) can be an effective technique to promote products for the bathroom manufacturing company. Providing free gifts or discounts with each purchase can be a part of their strategy. A certain percentage of yearly sales (suppose five percent) can be used for sales promotion techniques. Public Relation activities like press release, promotional events are not required at the initial stage. Digital marketing will play a pivotal role in order to communicate their brand message (IE Business School, n.d.). Website of John Lewis has been selected as one the most informative and updated site. The bathroom manufacturing company has the opportunity to provide their product information through the website of this British departmental store chain. Promotion through social networking sites by creating online game show, online forums and customer feedback forum, blogging and many others can be used by the company. Digital marketing will not cost much (may be three percent of annual sales) for spreading message like benefits of the product, user manuals etc. Spending on digital marketing has increased by more than 13% annually in USA and this fact signifies the importance of internet. Communication message needed to be designed in terms of premium image of the brand, high quality of the product, prompt after sales service offered by the company. Suppose the bathroom manufacturing company has annual sales of 100 million Pounds. They need to spend five percent meaning 5 million Pounds annually for sales promotion and 3 million Pounds on digital marketing (three percent). They need to spend another two percent of annual sales volume on other types of promotional activities. They can increase promotional budget every year by one percent (Pagliarini, 2011). A hypothetical budget is explained in the following table. Annual Sales 100 million Pounds Sales Promotion 5 million Pounds Digital Marketing 3 million Pounds Telemarketing 1.5 million Pounds Magazines 0.5 million Pound Total Communication Budget(Annually) 10 million Pounds Customer Service In the pilot store they need to design a customer service strategy which synchronizes with after sales service of John Lewis. John Lewis needs to formulate a future plan to inculcate a mutual and cordial relationship with customers. They can modify customer service in the following manner. 1. Train each staff about the details of the product and its application. Well trained staffs are capable of delivering proper customer service. Customers prefer shops where they get accurate reply to all product related quarries. 2. Customer feedback form is an essential part of providing better service. Two front office staffs should be appointed to record customer feedbacks. These front office staffs are required to share their view on customer feedback with store manager regularly. Customer service can be improved based on the basis of regular customer feedback. 3. The company is targeting families and families like to shop with their children. They need to arrange monthly game shows especially designed for children. Children prefer cartoons, animated characters, super heroes and this shop has the opportunity to satisfy them by conducting monthly game show inside the shop. Monthly customer foot fall can be increased by this strategy. 4. The shop can arrange free home delivery for heavy bathroom material purchased by a customer. Guaranty period should be increased up to 3years for each item. They need to deliver prompt after sales service to customers. 5. Online sales are an easy way to reach many customers but that does not mean it gives a right to deliver low quality product. Website of the bathroom shop is needed to be customer friendly and informative. Phone number and addresses of customer support manager or online sales support manager should be clearly mentioned in their website. References Auerbach, A. J., Devereux, M. P. and Simpson, H., 2008. Taxing Corporate Income. [pdf] Available at: [Accessed 17 August 2012]. Brown, M. A., Southworth, F. and Sarzynski, A., 2008. 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