Thorntons Ways to Gain a Competitive Advantage - Case Study Example

Organisations operate in environments that are characterised by stiff competition from other players in the same industry. In order to gain a competitive advantage, organisations ought to adopt one of Porter’s generic strategies in order to operate viably. As such, this essay seeks to critically analyse the competitive positioning of Thorntons product range in the UK confectionary market using either Porter’s Generic Strategies. The essay will specifically focus on how the differentiation strategy in particular and other strategies such as cost leadership have been used by the company in order to gain a competitive advantage in the confectionary industry. This will be followed by a highlight of Porter’s generic strategies and a critical analysis of how the above mentioned company has utilised one of them in order to gain a competitive advantage in its operations. Thorntons is UK’s largest manufacturer and retailer of specialist chocolates. The company success can be attributed to its strategy of in-house manufacture, retailing largely through the company’s own shops and franchising. However, the company encountered some viability problems as a result of the fact that its sales were largely dependent on seasonal events such as Christmas and Easter. During other periods, the sales hit bottom low levels and this negatively impacted on its operations. Besides this setback, the company has strategies in place that are designed to give it a competitive advantage as going to be discussed in detail below. It can be observed that there are many successful business organizations that operate in different markets that are viable such that rival competitors often find it very hard to exceed their performance. This stable status in business can only be attained when certain strategies are implemented which can be hardly imitated by the other rival competitors in the market. This can help ensure survival and sustainability in the long term and is often referred to as gaining a competitive advantage. Thus, Porter (1985) suggests a competitive advantage framework through his generic studies. According to this particular framework, a business can choose one or a combination of two strategies to implement in its operations so that it can gain a competitive advantage in its operations. In theory and practice, each business ought to appeal to the interests of many customers so as to be in a position to gain a large market share. Fig 1. Porter’s Generic matrix (Competitive Advantage) Source: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html University of Cambridge- Institute of Manufacturing 1. A firm chooses to become the low cost producer in the industry in cost leadership. 2. In differentiation strategy a firm chooses to be unique from other competitors in the market. 3. In cost focus, a firm utilises a cost advantage in its target segment. 4. In differentiation target, a company strives to be different in its target segment. In order to survive in the long term, Porter (1985) has argued that a firm needs to have sustainable competitive advantages. Differentiation is one of the major competitive advantage strategies that is utilised by Thorntons in its operations. According to Porter (1985, p. 120), differentiation is “the process when the company provides something unique that is valuable to buyers beyond simply offering a low price.” Differentiation strategy is mainly concerned with identifying one or a few key features of the product that have a broad perceived value in the market or segment targeted by the company in its operation (Robinson, 1997). Thus differentiated products are always seen as advantageous by virtue of their uniqueness. On the other hand, cost leadership is a situation where the company seeks to use low costs in production so as to gain a competitive advantage. However, of notable concern is the fact that not all strategies can be applied in the operations of the organization at once otherwise it might be stuck in its operations. As illustrated above, differentiation strategy is primarily concerned with portraying the uniqueness of the company as well as the products it offers to different customers in the market. A closer analysis of the case study shows that Thorntons has utilised this strategy to its advantage in its operations. This section analyses different strategies that have been used by the company in order to differentiate its market offerings to the customers. The organisation has differentiated its products through offering unique boxed chocolates. Basically, the market for boxed chocolates is largely driven by gift giving for such occasions as Christmas, Easter and Valentine’s Day as noted in the case study. These occasions are often held with great esteem by many people and the response to market offering is quite high. Boxed chocolates offered by the company are of great value and they appeal to the interests of many people since they are also of great quality. Boxed chocolate constitute a core product for Thorntons Company and their uniqueness have positively contributed to the performance of the company with regards to attracting customers from different segments. The other strategy that has been used by Thorntons to differentiate its products is related to in-house manufacturing. This is known as focus differentiation where the company focuses on the quality aspect of the product. Basically, this strategy of in-house manufacturing is specifically meant to ensure that that the quality of the boxed chocolate selections is assured through the use of quality ingredients and through the manufacturing expertise the company has developed. On top of that, it can be noted that in-house manufacture is seen to be responsible for protecting the exclusivity of Thorntons’ principal recipes. This is regarded as competitive advantage given that the exclusivity of the company’s recipes can be hardly imitated by any other competition. This helps to protect the brand name of the company and the customers can easily identify with the products offered. Offering unmatched products in the market help to give the company involved a competitive advantage since it can attract more customers. The chocolate industry is associated with luxury and leisure hence the need for the customers to obtain the best value out of their money. The concept of value chain usually links the prices of the products and services offered on the perceived value the customer has for the mentioned products offered (Lancaster and Reynolds, 1999). This is a scenario where the company establishes a target value of a product based on customer perceptions about the value that particular product holds. In this case, the strategy of in-house manufacturing has significantly contributed towards value creation for the products that are offered by the company since they are perceived as unique in terms of their great taste and quality. This focus differentiation strategy has paid off for Thorntones which has managed to attract a lot of customers by virtue of the uniqueness of the products offered. Its products are unique and they have premium prices focused on targeting the affluent people. The other strategy that has been adopted by Thorntons to differentiate its operations from other rival competitors in the industry is to use in-house selling. A closer analysis of the case study shows that the majority of the company’s sales are made through company-owned shops and these have a good reputation of providing good quality service to the customers which include the following: Personalised messages, written in icing, on such gifts as Valentine’s Day chocolate hearts and Easter eggs. The company goes an extra step by offering gift wrapped products to the customers as a way of appealing to their interests. These activities help the company to differentiate its service from the other rival competitors in the industry. All these extra services are not found in other companies and this gives Thorntons an added advantage since it is in a better position to appeal to the interests of many buyers. The company’s shops have become a part of the household name in the UK as a result of the quality services that are offered by the company’s sales team through its own store. Kotler (1999) states that quality customer service is very important in as far as attracting and retaining the customers are concerned. In most cases, companies that view the customer as king are winners since they are likely to attract a lot of buyers to their products. The other advantage of in-house selling strategy is that quality is maintained throughout the supply chain and this is the major ideal required by the customers when they purchase a particular product. Other competitors largely rely on other distributers when delivering their products to the market but it can be seen that consistency in terms of quality often lacks. However, the ability to maintain quality by Thorntons has significantly helped to improve its performance in the market since it can identify with a large number of customers. The other notable aspect in the case study is that the freshness of the product is a distinctive feature of Thorntons chocolates. This constitutes focus differentiation where the company specifically targets a certain market segment. The products offered by many players in the chocolate industry have a shelf life of up to one year but Thorntons has sought to distinguish itself from the other competitors by offering fresh products to the customers. The case notes that although Thorntons’ own research had shown that freshness is not the first concern for consumers when they purchase a gift of chocolates, the company believes that this strategy significantly helps it to create a distinctive feature that cannot be matched by the other competitors in the industry. The freshness of the chocolate products has added value to the company which has also given it a competitive advantage. As the saying goes, “First impressions make lasting impressions.” This is true of Thorntons given that its products are packaged in such a way that they leave lasting impressions among the targeted customers. The packaging accounts for a large part of the product’s perceived value since it appeals to their sense of sight. , is also manufactured by outside suppliers. Lancaster and Reynolds (1999) suggest that the attitude and ultimately the buyer behaviour are mainly influenced by their perceptions about a particular market offering. When the customers come into contact with the product, they often have mixed reactions and these have a bearing on them if they are likely to buy the product or not. A product that is presented in a good way is likely to appeal to the interests of many people. In case of Thorntons’ market offerings, it can be seen that the strategy of attractive packaging has significantly contributed to added brand value. A strong brand value is advantageous to the company since it helps to increase its competitiveness in the market that is characterised by stiff competition. It also differentiates the product as well as the company from the other actors in the same industry which is a source of competitive advantage. However, it has to be noted that the company adopted focus differentiation as well as differentiation strategies after implementing other strategies such as cost leadership where it concentrated on aspects such as franchising in order to lower its costs. However, this resulted in losses since the aspect of quality was compromised. The losses recorded by the company were mainly attributed to mixed strategies. As discussed above, differentiation and focus differentiation strategies are very effective in as far as sustainability of the organization is concerned. Kotler & Armstrong (2010) posit to the effect that a company that uses a differentiation strategy stands better chances of gaining competitive advantage over other rival actors in the same industry. The main reason is that it would offer unique products that cannot be matched by the rival competitors. As noted in the case study of Thornton, products manufactured in house by the company are of high quality and unique. The other differentiator is the freshness of the chocolate products offered which is a distinctive feature for Thorntons. The company also uses the box strategy to market its products to different customers. If carefully implemented, this differentiation strategy can go a long way in enhancing the company to gain a competitive advantage over the other rival actors in the organization. However, while the differentiation strategies can ensure sustainability of Thorntons in its operations in the long run, it can be observed that there are certain challenges that can be encountered in its operations. A closer analysis of the case study shows that UK boxed market chocolate is characterised by stiff competition since there are also other players. The market share in this category is dominated by Cadbury with 24 % as of 2002 followed by Nestlé Rowntree 19, Masterfoods 16, Kraft Jacob Suchard 13, Thorntons 8, Ferrero 5 and other brands 9. In other words, Thorntons is occupying the sixth position in as far as the market share is concerned. Turnaround strategy to improve the fortunes of the company is possible since its products are characterised by certain distinctive features. These make the company different from other competitors. The customers can even identify with the company as a result of this. In order to waive the competition mentioned above, it is imperative for Thorntons management to ensure that the differentiation as well as focus differentiation strategy is effectively implemented so that the company can sustain its operations in the long run. This can be done through market development which looks to increase market share with the same products but to get more new customers to buy them (Kotler, 2003). This goes hand in hand with the concept of market penetration which uses the same products and market and just increasing sales to the market. Already, Thorntons use differentiated strategy in marketing its products which gives it a competitive advantage by virtue of offering unique products. If the market share is increased through the suggested strategies, Thorntons can effectively use the differentiation strategy to sustain its operations in the long run. This will also ensure viability of the company where it will be in a position to operate profitably. Essentially, a company that has a large market share is capable of generating more revenue. This is also possible in case of Thorntons. The company only needs to focus on its core competencies of marketing differentiated products since they are likely to appeal to the interests of many customers. Over and above, it can be observed companies need to gain a competitive advantage in order for them to operate viably in the long run. This will also positively contribute to their sustainability if they are in a better position to attract as many customers as possible. As illustrated by Porter’s generic strategies, offering unmatched services to the customers is a source of competitive advantage to the firm. Differentiation strategy is very effective since it gives the organization a competitive advantage over the rival players in the same industry. As discussed in the case of Thorntons above, it can be seen that this strategy has paid off for the company though it still needs to improve its operations. If carefully implemented, the strategy of differentiation can go a long way in helping the company to gain a competitive advantage over other players in the same industry. This can also positively contribute to the viability and sustainability of the company in its operations in the long run. References Kotler, P & Armstrong, G 2010, Principles of Marketing, Person: CT. Kotler, P & Armstrong G 2004, Principles of Marketing, Pearson Education, Upper Saddle River: NJ. Kotler, P 1999, Kotler on Marketing: How to create, win and dominate markets, Free Press: London. Lancaster, G & Reynolds, P 1999, Introduction to marketing: A step by step guide to all marketing tools, Kogan Page Limited: London. Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance. Robinson, W 1997, Strategic Management and Information Systems, 2nd Edition, Prentice Hall, London. University of Cambridge- Institute of Manufacturing (N.D.) Viewed 28 February, from: . Read More