Diversification and Differentiation as Marketing Strategies for Sainsbury - Case Study Example

Political Changed VAT may affect prices Tax rate in the UK has dropped by 1% which is from 24% to 23% and is expected to drop further to 22% in the financial year beginning 1 April 2014 (bdo.com, 2013). This will help Sainsbury’s to save a huge amount of money but increase in VAT has increased prices of both in-store and online shopping been influenced more or less depend on different kinds of products Challenges from unknown forces As the globalisation is increasing particularly in these years, Sainsbury’s can be faced by challenges which will be competing against unknown forces, which may come from all over the world, and sourcing financially viable products with best quality from world over Economic Inflation Over the last few years, inflation has increased significantly putting pressure on the consumers and affecting consumer buying power as prices of various goods has increased. As a result of this, the demand for Sainsbury’s products has decreased which in turn has decreased the production of food products. Economic slowdown Many countries where Sainsbury’s operates have experienced economic slowdown and this has changed how and what consumers buy and this change appears to be lasting. Moreover, due this economic downturn especially in the UK banks have been affected to provide credit facilities to the customer which means that Sainsbury’s customer will not have a lot of money to spend hence affecting demand for its products (Croucher, 2013) High fuel price Due to the increasing fuel prices Sainsbury’ cost of production has increased forcing the company to increase prices of their products. As result of an increase in petrol prices to over £1.30 per litre, this has made it more challenging more than ever for Sainsbury delivering profitable sales growth (Sainsbury plc, 2012). Social More curious on quality of foods Nowadays customers are more curious on the health degree, freshness, and safety of food. To ensure all is met, Sainsbury’s is focusing on fresh food which is closely related to their 20 by 20 commitment to double the amount of British food in store by 2020. This will help develop British farming and protect livelihoods, while reducing food miles and delivering fresh, healthy, nutritious food to the table (Sainsbury plc, 2012) Change of taste and preferences There has been a significant shift towards cooking more meals from scratch, shopping more frequently to manage waste and spend, and looking out for discounts and deals (Sainsbury plc, 2012) . This will increase demand for Sainsbury’s products as people will buy these fresh products to cook their meals Technology Growing internet phenomenon Internet access is growing all over the world, which has lead to a significant growth potential in the online or web based operations of the business. Online operations help companies to expand their capacity resulting to an increase in sales. Sainsbury's online food delivery service is increasingly expanding since as per their annual report for 2012, continuous improvement in the services offered online has resulted in increase of sales by 60% year after year Use radio frequency identification device on logistics The technology of radio frequency identification device can be used in managing Sainsbury’s logistics, It can help the organisation to decrease the inventory and be more profitable Automated ordering system This can improve Sainsburys product availability status Self checkout in Sainsburys for 24 hours which might help boost sales Environment Environmental issues has been paid more attention to For the past few years, people are focusing on environmental issues and protection and these calls for Sainsbury’s organic food to be strengthen as consumers would like healthier foods more rather than cheaper foods Poor climate Change in UK Climate which has affected the production of food (Sainsbury plc, 2012) Legal Stringent laws on foods and drinks Since the laws on foods and drinks are stringent, Sainsbury’s must follow an increasing number of policies and laws of packaging and labelling and also this is an additional financial burden on the organisation Strengths Customer loyalty-they have had the highest market share or decades Excellent financial performance-they reported a profit before tax of $712 million which was an 7.1% Good relationship with the supply chain which ensures that the company is the quickest to market its fresh lines Continued link with the supplier (farmers) which has made sure the company remains a market leader Providing customers with a variety to choose from Excellent service, skills and expertise have resulted in sales from our counters growing faster than at any other retailer. The leadership team which is led by the CEO, Justin King, is extremely experienced Good reputation on protecting the environment where the company is well placed with issues relating to recycling, going green activists. Weaknesses Lack of internationalization where Sainsbury has restricted its operations to the local market which is a disadvantage to the company Takeover bid between Qataris Private equity firm and Sainsbury’s have had impacts since many people from Britain are very loyal to companies owned by British people as opposed to companies owned foreign organization Opportunities Opportunities for further growth in the food and non food retailing Internet shopping has provided great opportunities that Sainsbury can exploit Investing in the mobile telecommunication sector Threats Change in UK Climate which has affected the production of food Economic downturn which has affected the sales growth Stiff Competition from companies such as Tesco which has invested heavily in the international markets which are growing rapidly Marketing objectives: To maintain or increase the current market share from last year’s 16,6% to 16.8 % by the end of the financial year To improve the current sales growth from the current 2.1% to 2.5% by the end of the financial year To expand our market by going international and increase our sales by at least 10% in the first financial year To increase our online sales by 10% making our website available for both members and non-members Marketing strategies There are two main marketing strategies that Sainsbury can adopt based on the internal and external analysis conducted above. They can either go for differentiation or diversification. 1 - Differentiation This is a marketing strategy where organizations seek to make their products unique form those of their competitors and therefore build a unique and strong identity for those products. It is also known a segmentation strategy whereby organizations try to stand out from their competitors (Cole, 2005, pg.59). Examples of differentiation include product differentiation and business differentiation. Business differentiation is mainly used by organizations that are already successful and they only seek to position themselves in the mind of the consumer. It seeks to set the business apart from others of its kind in the industry, demographic area, geographic area or market (Cole, 2005, pg.59). In this case Sainsbury can identify those factors that set them aside from others and build on them these factors include; Competitive prices Durable products Quality products Customer service Reliability of customers on Sainsbury Product warranty On the other hand, with Product differentiation companies seek to introduce a variety of the same product so as to serve different market segments. Here, the base product is modified to suit specific needs of different market segments. Sainsbury should not only develop a range of their product but should develop efficient marketing techniques as well. Diversification Diversification is a marketing strategy that seeks to expand on a company’s growth. This is done through introduction of new products in the existing markets, introducing new products in emerging international markets, acquiring other organizations, forming strategic alliances, importing and franchising (Cole, 2005, pg.63). Diversifications can either be internal or external. Internal diversification is where an organization introduces existing products to new markets or introduces new products to existing markets. The aim is to increase market share by reaching out to more customers. Sainsbury can introduce low-salt foods to the already existing line of products. External diversification on the other hand introduces new products to new markets. They introduce new lines of businesses not related to the already existing ones. Takeovers and mergers are good examples of external diversification (Cole, 2005, pg.63). For instance, in 2009, Sainsbury indicated in interest in acquiring twenty four stores form the Co-operative group where it was not well represented Conclusion Marketing strategies like diversification and differentiation will help Sainsbury to attain long term growth. It will require working with both strategies if it is to be successful. To cope with economic downturn and changes in consumer behavior, there is need to diversify by investing in other businesses and there is need to differentiation so as to maintain customer loyalty. It is therefore recommended that the company use both differentiation and diversification. Marketing programmes For Sainsbury to achieve the above named strategies, they should undertake the following action plan Product A brand distinguishes a company and its products from its competitors. Sainsbury brand products ranges three tiers defined as ‘good, better, best' which are offered via the ‘basics, standard Sainsbury, taste the difference' sub-brands. For Sainsbury to benefit from its strong brand name, implement the concept of product building by Philip Kotler where a product should be developed in 3 levels (kotler, 2009 pg. 87) Level 1: Core product Sainsbury should identify the core function or the core benefit of its product. For instance, Sainsbury food products bought by its consumers are more just a product since they represent health and good quality food Level 2: Actual product At this level, Sainsbury should develop and promote its brand by adding features and benefits to ensure that their branded products offer competitive advantage to their customers Level 3: Augmented product Sainsbury should contemplate on augmenting its branded products by adding non-tangible features and benefits to the after sales product such as warranty Pricing A good pricing guarantees customer retention, profitability, customer satisfaction, and customer demand. Sainsbury review and modify it current pricing policy taking into consideration a number of pricing strategies, the following are the three pricing strategies that we recommend to Sainsbury (kotler, 2009 pg. 89) ; Penetrating pricing strategy- under this strategy the prices are reduced to increase the sales volume and capture the maximum share in the new market, this will encourage the potential customers to switch to the products of Sainsbury. Product line pricing-under this strategy Sainsbury should have different price point for the good, better and best sub-brands Competition pricing- In order to be a leader in the industry, Sainsbury's product prices should not only be very competitive and not just comparable References J Sainsbury plc (2012) annual report and financial statement retrieved on 18th March 2013 from http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_2012.pdf Philip Kotler(2009) Principles of Marketing, 3rd Edition, Prentice-Hall: London, UK Cole A (2005) Strategic management 2nd Edition, Seng lee press: Singapore Croucher S (2013) Triple Dip Recession: UK Economy Contracted -0.3% in Q4 retrieved on 18th March 2013 from http://www.ibtimes.co.uk/articles/423267/20130111/uk-gdp-economy-niesr-ons-recession-growth.htm BDO (2013) Business and corporate taxes retrieved on 18th March 2013 from http://www.bdo.uk.com/services/tax/budget-2012/business-and-corporate-taxes Read More