Partnership and Business Strategy of John Lewis - Essay Example

? MG3122 STRATEGIC MARKETING Table of Contents Table of Contents 2 0 Introduction 4 2.0 John Lewis 4 2 John Lewis Partnership 4 2.2 Business Strategy 5 3.0 Industry Overview 6 3.1 Industry Trend 6 4.0 Marketing Mix 7 5.0 SWOT Analysis 9 6.0 PESTLE Analysis 10 6.1 Political 10 6.2 Economical 11 6.3 Social 11 6.4 Technological 11 6.5 Environment 11 6.6 Legal 12 7.0 Porter’s Five Forces 12 7.1 Buyer’s Power 12 7.2 Supplier Power 12 7.3 New Entrants 13 7.4 Threat of Substitute 13 7.5 Degree of Rivalry 13 References 14 1.0 Introduction John Lewis has been selected by the study to conduct Strategic Marketing Audit. John Lewis belongs to retail industry. Retail industry in United Kingdom is not only hypercompetitive but multidimensional also. Strategic marketing audit of the company will help management researchers to gather insights about existing retail industry in the country and deduce strategic business model required to succeed in long run. 2.0 John Lewis John Lewis is renowned departmental store chain of United Kingdom. The store chain has expanded business throughout the country within last hundred years. The company is headquartered at London, United Kingdom. The departmental store chain was founded by John Lewis in the year 1864. In the initial period the organization started their operation as single store but soon they transformed their business model into departmental store chain with the help of John Lewis Partnership. 2.1 John Lewis Partnership The partnership model gives opportunity to employees to gain partial ownership and contribute as stakeholder to business operation of the departmental store chain. John Lewis Partnership provides partial ownership or partnership benefits to existing thirty nine thousand employees of the company (McCallion, 2010). The John Lewis Partnership has won 'Retailer of the Year' in the year 2011. Recent report published by the company shows that they have more than 81,000 permanent staff as well as partners. John Lewis has been ranked as one of premium departmental store chains of United Kingdom. They have already opened thirty eight outlets and also planning to establish strategic business units in foreign shore within next five years. The London based departmental store chain has achieved annual gross sales revenue of ?8.7bn in the year 2011 (John Lewis Partnership, 2012). 2.2 Business Strategy Business model of the company can be understood in the following manner. The company operates with 30 departmental stores across United Kingdom in order to provide multi brand products to customers The company has opened eight John Lewis at home stores They have also established 285 Waitrose supermarkets for selling products on online platform Business strategy of the company relies on three interdependent variables such as s Partners, profit and customers in order to achieve sustainable business growth. Strategic initiatives of the company can be analyzed in the following manner. Providing maximum sustainability and security to partners in order to motivate them to perform well. The company has understood that satisfied partners can help them to improvise in daily operation which will help them to increase operational excellence. Partners need to emphasize on recruiting and retaining loyal customers through providing them excellent customer triads such as quality, service and price. The company tries to retain sufficient profit margin for partners in order to sustain commercial vitality of the company. John Lewis distributes profits to staffs and partners on regular basis in order to motivate them to perform well (John Lewis Partnership, 2012). 3.0 Industry Overview John Lewis has cemented a premier position in retail and departmental store industry. The company faces competition in the field of Furniture Manufacturing, Consumer durable Manufacturing, Textile Manufacturing and Grocery Supermarket. ASDA Group, Arcadia Group, Marks & Spencer and Argos Limited are major competitors for John Lewis. Swedish furniture retailing giant IKEA has recently entered in retail industry of United Kingdom and they are the potential threat for other retail players. Sainsbury is also increasing their business in the country and they can create challenging business condition for John Lewis in near future. 3.1 Industry Trend Many fashion groups such as ASDA, NEXT and others maintain high profit margin from low sales volume in comparison to comparatively higher sales volume of John Lewis. John Lewis maintains very low profit margin due to high value chain cost. Departmental store chain such as Marks & Spencer has achieved higher profit margin in contrast to John Lewis while Sainsbury's has also achieved same level of profit from 15% lower sales volume. John Lewis is already facing competition from e business companies such as eBay, Amazon, Boutiques.com and others. Many customers of United Kingdom prefer to shop from company owned independent retail shop hence they do not prefer to visit departmental store chains (Wang, Bell, & Padmanabhan, 2009). Independent company owned stores offer various sales promotion techniques such as price discount, additional gift on every repeat purchase and loyalty cards in order to retain customers. Mark & Spencer is the biggest competitor for John & Lewis for many years and they have business strengths like expanded distribution network (Narayanan, Raman, & Singh, 2002), high bottom line. Majority of departmental store chains are suffering from issues like poor customer relationship management and poor after sales service. Another problem for upmarket departmental store chains such as John Lewis, IKEA is slow growth rate. Customers are United Kingdom have decreased annual spending on upmarket products due tumultuous financial condition of the country caused by sovereign debt crisis of Europe and after effect of economic recession started in 2008 (Lynn, 2010, pp. 128-148). In this scenario customers are banking on online shopping due to various factors such as convenience, opportunity for price comparison, on time delivery and many others. Online stores can earn higher profit margin from selling product at market price due to low value chain (read primary activities of value chain) cost hence they have emerged as major threat for brick and mortar departmental stores. 4.0 Marketing Mix Product Organic and fair-trade foods, Groceries, Clothing, Kitchenware, Electronic goods and home Furnishings Services Insurance services, online sales channel and Travel and leisure services Brands Waitrose and John Lewis Price The company follows premium pricing policy to sell merchandises. For example, the company offers bathroom furniture at a price band of ?50 to ?700 which is higher in contrast to market price. Waitrose has launched price match promotion in order to absorb increases in food prices. The company never encourages discounts, selling product below marked price in order to portray quality and brand value to customers. Place The company has established production warehouse in Milton Keynes in order to deliver goods to its 38 department stores. Production unit located in Magna Park has the capacity to stock more than 0.16 million goods at a time. The company follows departmental store chain models to offer products to customers. Recently the company has launched Wi-Fi enabled distribution channel for customers in order to motivate them to do online shopping from company website. Promotion The company is relying heavily on digital marketing strategy such as social media advertisement, online sales channel, website development and others to promote their product. Report shows that online sales volume for the company has increased more than 27 % in last one year. The company also uses print media such as magazine, news papers to promote their brand. John Lewis has launched “Never Knowingly Undersold” ad campaign last year in order to increase brand visibility. 5.0 SWOT Analysis The company operates with two brands such as John Lewis and Waitrose and also enjoys strong brand equity among customers. Financial turmoil in European region has decreased market opportunity for the country in recent years. Financial condition of the country is forcing them to change existing marketing strategy to achieve sustainability. Strengths Weakness Strong brand equity and customer service Helped the company to increase customer loyalty. Waitrose has strengthened its market position by launching new products and it also established strategic partnerships with John Lewis. Strategic partnership with Waitrose helped John Lewis to expand geographical reach and offer exceptional quality products to customers. Poor product recalls and premium pricing has impacted reputation of the company in market place. Target market for the company is limited in comparison to other competitors. Opportunities Threat UK online retail market is growing at sustainable rate and this situation will enable John Lewis Partnership to earn revenue from online sales. Online sales channel is needed in order to compensate rising labour wages in the country. The company has opportunity to expand business in Scotland, Ireland and other native countries through strategic partnership with private level brands. Retail industry in UK has become hypercompetitive due to entry of foreign players hence profit margin also diminished for John Lewis in recent years. Rising labour wages has increased operating cost for the company. 6.0 PESTLE Analysis 6.1 Political Government of United Kingdom provides support to foreign players for investing and diversifying their business in the country. In this situation, foreign departmental stores are entering in the country with the help of FDI or Foreign Direct Investment hence John Lewis will face market competition from foreign players in upcoming years (Chakrabarti, Subramanian, Meka, & Sudershan, 2012). 6.2 Economical British Government has already reduced corporate tax rate from previous 30% to 28% (Auerbach, Devereux, & Simpson, 2008). John Lewis and other corporate players will surely get benefitted by such corporate tax policy. 6.3 Social British people are habituated with global trends in terms of buying behaviour, dressing and lifestyle. They prefer to live healthy life style hence they prefer to purchase exercise kits, low calorie food items. John Lewis has the opportunity to attract young people by doing category extension in fitness products. 6.4 Technological Online retail sales in United Kingdom has increased manifold in recent years hence departmental stores are reshaping their business model in order to fulfil demand of customers. Although John Lewis has introduced online shopping centres but they still have the opportunity to expand online distribution network. 6.5 Environment The UK is a crammed set of distinctive islands. Environmental aspects of retailing depend on seasonality. Retailers change sale promotion strategy in accordance to seasonal requirement. In winter customers prefer to purchase Christmas products while in spring season they prefer to purchase cloths with vibrant colours. 6.6 Legal Consumer protection act in United Kingdom is very much helpful to customers. Office of Fair Trading examines trade malpractice acted by retailers hence John Lewis focuses on providing quality services to customers. Government of United Kingdom is conducting investigation profit earnings ratio of retail players. John Lewis charges premium price for their offering hence they need to adjust their pricing strategy in accordance to government policy. 7.0 Porter’s Five Forces 7.1 Buyer’s Power Departmental store chains in the country offers various products such as apparel, bathing solution, electronic gadgets and many others to customers. Financial muscle of competitors depends on their business portfolio. Target customers are limited for John Lewis hence standing of any individual loyal customer affects business of particular store. Same cannot be said for their Waitrose venture where revenue generated by single customer is minimal. Preference of buyer plays pivotal role on deciding inventory strategy for the company hence it can be said that overall buyer power is high. 7.2 Supplier Power Suppliers of retail industry include farmers, electronic manufacturers, apparel companies and others. John Lewis maintains relationship with limited number of suppliers which ultimately increases the scope of local sourcing problems or domestic price fluctuations. John Lewis has not developed their own brand retail concept significantly to pressurize suppliers. Other big players of the industry can pressurize their suppliers due to their large size and expanded target market. It can be referred that supplier power is moderate. 7.3 New Entrants Although UK government is encouraging foreign players to expand their business in the country but infrastructural cost of setting departmental store chain is high for new entrants. Entry barrier is high for new and small retailers hence threat of new entrant is low. 7.4 Threat of Substitute John Lewis offers range of products to customers hence finding substitutes for each of them is difficult. The company offers necessities to customers hence availability of substitute is low. 7.5 Degree of Rivalry UK retail market is hypercompetitive due to presence of many domestic and foreign players. Competitor analysis is already done in the previous section hence no further explanation is done. It can be referred that degree of rivalry is high in the industry. Factors Threat of new Entrants Threat of substitutes products Bargaining power of buyers Bargaining Power of Suppliers Existing Rivalry Level of Impact High Medium Low 8.0 Conclusion The study shows that John Lewis has the opportunity to sell own branded goods due to strong brand equity and enviable corporate reputation. Although the company has limited its own branded products to furniture, curtains, carpets and home ware but they have the capability to enter white goods category such as electronics equipment in near future. Category extension is needed for the company to increase profit margin in near future. References Auerbach, A. J., Devereux, M. P. and Simpson, H., 2008. Taxing corporate Income. [pdf] Available at: [Accessed 6 November 2012]. Chakrabarti, R., Subramanian, K., Meka, S. and Sudershan, K., 2012. Infrastructure and FDI: Evidence from district-level data in India. [pdf] Available at: [Accessed 6 November 2012]. John Lewis Partnership., 2012. About Us. [online] Available at: [Accessed 6 November 2012]. John Lewis Partnership., 2012. Our Strategy. [online] Available at: [Accessed 6 November 2012]. Lynn, M., 2010. Bust: Greece, the Euro and the Sovereign Debt Crisis. Hoboken, New Jersey: John Wiley & Sons. McCallion, J., 2010. To What Extent Has The John Lewis Partnership's Business Strategy Proven to Have Enabled the Business to Survive and Prosper Throughout the Recent Recessive Economic Trading Environment More Effectively Than Their Competitors. [pdf] Available at: [Accessed 6 November 2012]. Narayanan, V.G., Raman, A. and Singh, J., 2002. Agency Costs in a Supply Chain with Demand Uncertainty and Price Competition. [pdf] Available at: [Accessed 6 November 2012]. Wang, Y., Bell, D.R. and Padmanabhan, V., 2009. Manufacturer-Owned Retail Stores. [online] Available at: [Accessed 6 November 2012]. Read More