ASDA Marketing Strategy - Assignment Example

ASDA Executive summary This essay analyses ASDA and its marketing aspects relating it to the theoretical concepts of marketing. It is fascinating to see the workings of the organization to survive and achieve success. ASDA operates in the grocery sector and is diversified into clothing, eye care, photo centre and financials. The UK grocery market was worth 119.8bn in 2004, a growth of 4.2 per cent over the previous year according to IGD Research. The research firm forecasts that the market value will rise to 133.5bn by the end of 2009, with much of the growth attributable to inflation. IGD predicts that development of the UK grocery retail market will continue to be restricted by a combination of slow population growth, price competition and growth in the foodservice sector as an alternative channel. (Source from website http://www.foodanddrinkeurope.com/news/ng.asp n=61268-ASDA-reorganises-as) Company Overview ASDA is a household name in the UK. It has a range of products from groceries to clothing to jewellery. Bought over by Wal-Mart Stores in 1999, ASDA is the UK's second-largest food retailer. It operates about 280 large stores (including 19 ASDA Supercenters and 10 standalone George clothing stores) and its focus is primarily on groceries and apparel. It also sells books and videos, household items and has a photo centre. It also offers ethnic take away meals. Its consolidation with Wal-Mart, has initiated a price war in the UK ASDA mirroring Wal-Mart's aggressive "price-rollback" program and converting stores to Wal-Mart's supercenter format under the ASDA-Wal-Mart banner. (Source from website http://www.hoovers.com/ASDA/--ID__90031--/free-co-factsheet.xhtml) It 'became part of the Wal-Mart family' - on 26 July 1999 for $10.8 billion". Since then, ASDA claims that it has gained one million new customers. It is converting some stores to Wal-Mart's super centre format under the ASDA-Wal-Mart banner. Two more ASDA-Wal-Mart super centres opened in 2000, and it is likely that another ten will open by 2006. (Source from website http://www.corporatewatch.org.uk/ lid=800) Mission ASDA's Mission Statement is: "To be Britain's best value retailer exceeding customer needsAlways" ASDA aims to provide the customer " a level of service that is not just good, but exceeds the needs our customers" ASDA tries to achieve this by means of its everyday low price philosophy. This price is on a daily basis and is not a sale or promotional price and customers come to ASDA knowing that they always have the lowest prices. ASDA states its purpose as "To make goods and services more affordable for everyone" It emphasizes that it wants to offer everyday low prices without compromising on quality and is on the lookout for new products and services that it can sell and in effect end up offering better value to the customer. (Source from website http://www.wherewomenwanttowork.com/evidence/evidence2.aspid=1220&qid=1&eid=890) Competitive Advantage Michael Porters Generic Strategies for competitive advantage states that, "For an organisation to obtain a sustainable competitive advantage, they should follow either one of three generic strategies" (Porter, 1980) Cost Leadership: In this strategy, the organisation tries to be the lowest cost provider in the business. This is achieved by keeping costs low right from production to the sourcing to labour costs. Huge volumes that compensate for the low margins and low cost achieve this. Differentiation: In this strategy, organizations try to differentiate their products. By allowing the customer to perceive a differentiated value to the product, the organization is able to command a better price leveraging this perception. For this strategy to work, their product needs to stand out from similar products. However substitute or copied products pose the danger of upsetting the value of the product. Patents also expire and then the competitive edge is lost. Niche Strategies: In this strategy, the organization caters to one particular segment and becomes well known for providing products or services within the segment. ASDA has adopted the Cost leadership strategy. Although its takeover by Wal-Mart is not so long ago, ASDA was an avid follower of Wal-Mart's policy of "everyday low price always" well before being absorbed into the Wal-Mart family. ASDA has well-established brand equity of being a low cost supplier and this strategy has worked well for it. (Source from website http://www.learnmarketing.net/generic.htm) Market Structure The importance of the market structure is that it determines how the companies within it operate, their performance and behaviour. The degree of competition within the market determines how the pricing will affect the consumer. Indices of market structure developed over time offer an approximate measure how much of an industry is concentrated in the hands of a small group of companies. This tells just how competitive an industry really is. A market structure defines the condition of a prevailing market and identifies how it is made up in terms of The number of firms in the industry The nature of the product produced The degree of dominancy each firm has The degree of influence of the firm on price Profit levels An oligopoly is a market structure in which there are a small number of interdependent companies in the industry. In oligopolies, there are few companies and survival is always dependent upon a strategic tactic made to outwit the rivals. Oligopolies also tend to get into heated competition in the form of price wars and other ways of corporate fighting. There are a small number of companies and thus, the relations between companies are very important. They are highly competitive and end up owning a high concentration of the total market share. The behaviour of these firms is affected by what their rivals' do- all firms in oligopolies execute strategic planning. Branding and brand loyalty determine the purchase and perceived value is an important criterion for purchase. ASDA operates in an oligopoly. According to TNS Superpanel of the United Kingdom based global market information group Taylor Nelson Sofres, that keeps track of the grocery sector, "As of 29 March 2006, Tesco has over 30% of the UK grocery market, ASDA is on 16.6% and Sainsbury's on 16.2%, compared to 16.8% versus 16.0% at the same point in 2005" (Source from website http://en.wikipedia.org/wiki/ASDA#See_also) Hence it can be seen that these three players are the most dominant ones and garner the lion's share of the market. Therefore, ASDA needs to constantly monitor its rivals to set its strategic goals and gain market share in the future. Industry Analysis Michael Porter's analysis of the five forces that drive competition within an industry can be applied to ASDA to facilitate understanding of the existing scenario. Porter identifies the following five forces that ultimately determine the long run profit attraction of a market or market segment comprising of industry competitors, potential entrants, substitutes, buyers and suppliers. (Porter, 1985) The threats these pose are as follows: The bargaining power of suppliers: ASDA has the advantage of its scale and its suppliers often deal with high volumes. ASDA has a long-standing relationship with the suppliers and due to its sheer size offers enormous volumes. Losing a client like ASDA may be disastrous for the suppliers. Although suppliers can exert power by asking for an increased price or compromising on quality to threatening to better margins and ASDA has a strict policy on those. Its low cost strategy will be impacted should this occur and therefore insulates itself by its economies of scale by squeezing the suppliers as much as possible. This makes the bargaining power of suppliers low. The bargaining power of buyers: Buyers have a strong sense of brand value of ASDA. There is a perceived understanding that no store can beat ASDA's low prices. Therefore, buyers, especially the low down target segment, instantly decide to shop at ASDA for their requirements. This target segment is extremely price conscious. If they find a similar product at a lower price, then they will switch easily due to the lack of cost associated with switching. The threat of entry by new competitors: New entrants do not have the sheer volumes of ASDA. Low prices and low margins need to be compensated by huge turnovers. ASDA is already established in this context and new entrants will find the barrier of entry very high. ASDA also has a brand value that will be difficult for a new entrant to develop. ASDA's distribution channels are all in place and this is a vital part of a business. This again is a barrier of entry to the new entrant due to a paucity of the distribution network. Pressure from substitute products: Although, sourcing from low cost destinations seems to make a lot of business sense in current day scenario, this translates into lowest cost per unit only when there are economies of scale. Therefore few will be able to combat ASDA on these counts. Also when these volumes are high, suppliers offer deeper discounts and better prices and adhere to required quality levels, which creates a winning combination for ASDA and making it hard to substitute. The intensity of rivalry among existing competitors: ASDA operates in an intensive competitive environment. Tesco is ASDA's arch competitor. Tesco, with 30% market share and has 2,460 supermarkets, hypermarkets, and convenience stores in the UK (where it is the #1 food retailer), Ireland, Central Europe, and Asia. Started as a discount chain, Tesco expanded graduated into a midmarket segment in addition to its traditional low-end audience. Its operations include convenience and gasoline retailing (Tesco Express), small urban stores (Tesco Metro), hypermarkets (Tesco Extra), and financial services through Tesco Personal Finance. A global leader in online grocery sales, it owns a 35% stake in US grocery chain Safeway's GroceryWorks. (Source http://www.hoovers.com/tesco/--ID__90426--/free-co-factsheet.xhtml) J Sainsbury is the next player to be considered. The UK's third-largest grocery retailer (after Tesco and ASDA) operates the Sainsbury's Supermarkets chain, 464 supermarkets in the UK as well as 260 convenience stores under the Sainsbury's Local and is known for its own private label products. The supermarkets get about 40% of their sales from private-label products. (Source from website http://www.hoovers.com/j-sainsbury/--ID__40427--/free-co-factsheet.xhtml) Wm Morrison Supermarkets has now become a strong contender by its acquisition of its larger rival Safeway plc. The grocery chain increased its store count to about 550 supermarkets from just 125 when it own the takeover sidelining Tesco and ASDA in a highly-contested takeover battle. Morrison supermarkets offer a variety of food and non-food items (including cars), most notably through its Market Street specialty departments. About 100 of the stores have gas stations. (Source from website http://www.hoovers.com/wm-morrison-supermarkets/--ID__90499--/free-co-factsheet.xhtml) Therefore, ASDA needs to pay close attention to its competitors, and strategize accordingly, if it needs to improve its market share and stay successful in its sector of operation. Although there is severe competition, the advantage of the food sector is that even in a recession while people cut out on the luxuries, food always remains a basic necessity. Supermarkets are sustained by their food sales that keep growing every year. Non-essential food items have been garnering sales as well in the supermarkets. With more people opting for one-stop shops, hypermarkets that deal with a range of products are becoming immensely popular. The clothing market is more varied and ranges from low cost casual wear to high fashion clothes and trendy boutiques. With the advent of sourcing to low cost of suppliers and technological advances that has led to improved efficiencies in better machinery, the number of players has phenomenally increased especially with the supermarkets joining the fray, and therefore the margins in this industry are moderate. ASDA being in the lower end of the market is insulated even in recessive times and therefore has a better chance of surviving downturns. These mixed overall mixed goods market is both mature, saturated and margins are not excessive. Especially in clothes, mushrooming small players create pressure by increased supply to a fixed demand. Acquiring and maintaining market share is difficult and has to be constantly monitored and energetically kept varied and updated to respond to changing dynamics. Competitive strategy The competitive strategy of an organization is crucial to obtain and sustain the competitive advantage in order to achieve its organizational objectives. External environments exert a great deal of influence on any sector, and changes in these factors impact the strategies and growth of an organization. The external environment is analysed using political, economic, social and technological factors. PEST Analysis Political: The political government is stable conditions are stable and there are no major legislations that affect the operational capabilities. Environmental concerns are increasing and these may bring legislations that may enforce stricter control that may affect the stores in the long term. Advent of other legislations like minimum wage changes, labelling, licensing etc. may affect operation in the long term. Economical: The European Union and the Euro may contribute to better purchasing power without currency conversion issues especially online. Increasing oil barrel costs that triggers gas price increases will increase transportation and utility costs impact the low cost strategy of the organization. Social: Social causes would include increased mobility and are presented with more choices now and therefore customer loyalty is no longer a guaranteed entity. Wider geographical areas dedicated to shopping add pressure to the storeowner to bring the customer in to make a purchase. More disposable incomes and increase in leisure time has allowed the customer to shop in multiple locations before making a purchase. Increasing emphasis on "style and fashion" in the clothing sector, may cause them to upgrade to more "premium" brand. A more health conscious consumer base may increase needs for more nutritional and healthy food choices. Technological: Technology in the form of increased efficiencies, in machinery, better supply chain logistics and Internet online shopping has brought in rapid changes. The Internet explosion has made people more aware of trends and styles available worldwide and free shipping and online shopping has widened the shopping arena across geographical boundaries. SWOT Analysis Internal factors will include analysis of organizational strengths and weaknesses and future growth areas and challenges. This is usually done using a SWOT analysis of the company. Strengths: ASDA's success may be attributed to its greatest strength that is its low price strategy. Its enormous scale benefits it. It also offers services like photo centres and runs day care services in the stores. People find shopping easy due to the excellent customer service. It has an efficient distribution network and superb sourcing with its local suppliers who deliver to its door. This reduces inventory overheads and allows excellent availability of goods and keeps its bottom line safe. Weakness: Its main weakness will be the target segment. Its low cost strategy also negates a premium image, and it loses market share from those who are looking for a little bit extra to other players. Tesco for example caters to both low and mid segment and therefore has more of a wider audience base. ASDA stores are also located in remote locations, and this makes accessibility an issue. It uses visible advertising only sparingly and banks on more its established image. ASDA has been criticised for failure to accept worker unions, and also "using suppliers who are known to have illegal employment practices, ignoring planning regulations and destroying greenbelt land, lack of serious environmental policy and blatant green wash." All this builds a negative image in the eyes of the public, which it needs to counter. (Source from website http://www.corporatewatch.org.uk/lid=800) Like its parent, it has been accused of destroying local communities. Opportunities: The European Union and a single currency are beneficial for investors and purchases as well. It is now a part of the US retail giant, Wal-Mart and can be ably supported to achieve efficiencies. E-commerce may be the next best thing happening. With the growing Internet user increases, online shopping presents great opportunity undeterred by geographical boundaries. ASDA should concentrate on converting more online shoppers, since the overhead costs for the sales are way lower than physical shopping. It can mirror Walmart's strategy of "brick-and-click" concept where customers can order online and pickup at store, or it can also offer home delivery that will all make it more appealing. Threats: Lack of a wider customer base would definitely be a threat since it would constrain its growth. Technology has ushered in more efficiencies and therefore, lower price of production brings in more competitors to the arena. Its size by itself may cause the loss of efficient control. More consolidation of chain stores may result in being pushed down the league of big players. Marketing Mix A marketing plan is a general term used to describe the overall plan for marketing a brand, which outlines goals and objectives for the brand, and how to reach the consumers. Let us now discuss the current scenario of ASDA and what it can do to move forward in the 4P's of marketing. Product The product often caters to the mass market or the niche market. ASDA caters to the mass market. This makes its very susceptible to growing needs and changes. The rising consumer expectation is a key driver of change. Product preferences and trends, especially in clothing, and the definition of fashion keep constantly evolving. Traditional fashions are infused with newer trends and colours to cater seasonally. Fashion has become a life style concept that allows expression of the individual needs all within a limited budget. ASDA's clothing line "George" is famous, but low cost is often perceived to be low quality and these products do not have an upmarket image that it needs to combat. Bringing in trendy designs in keeping with the times and trying to emphasize that its quality is impeccable will help its sales. On the food side, its product freshness and price are good, and their availability is a great selling point. In keeping with the latest high nutritional low calorie trends, foods without additives and preservatives, low sodium and low calorie meals and other ethnic foods catering to the diverse population will be beneficial. Pricing In the grocery department, eventually scale and volumes dictate survival, but a multitude of strong players keep the prices on a downward spiral to maintain competitiveness and presence. Therefore, the marketing plan in terms of price will be a constant price comparison with the vendors to maintain market share. In the clothing sector, in addition to its existing lines, ASDA can introduce a newer "upmarket " line that will bring in more customers. It can also try to bring in some newer designer trends for the younger consumer. With styles constantly evolving, frequency of purchases is more because the youthful crowd keeps up with the changing trends. Place ASDA can revamp its stores and give it a fresh new airy look, and this improved ambience will be welcoming. The aisles and point of displays should be made more accessible and attractive and the dcor more tuned towards the audience it caters to. This will serve to infuse fresher synergies for its products. Promotion With the globalisation and explosion to the immense amount of information, advertising and promotional campaigns have to really gear up to announce visibility. A promotional mix of print, electronic media and sales campaigns will be advised. Commercials targeted towards the consumer proclaiming new products and a fresh approach will help. Involvement as sponsors non-profit organizations and academic events will enhance its image. Customer loyalty should never be taken for granted. Conclusion ASDA has painstakingly built a reputation for value for money, convenience and a wide range of products all in one store. It is now part of a global chain and can gain extraordinary leverage from it. It needs to remember that people are its key assets and instil a focused strategy for human resource management and development. Trained motivated employees are invaluable. Widening its customer base and keeping in tune with the dynamic changing times will take ASDA forward in pursuit of a better share of the market. Sources ASDA Wikipedia.org [Online] Retrieved from website http://en.wikipedia.org/wiki/ASDA#See_also on April 1, 2006 ASDA reorganises as supermarket war heats up Food and Drink Europe.com [Online] Retrieved from website http://www.foodanddrinkeurope.com/news/ng.aspn=61268-ASDA-reorganises-as on April 1, 2006 Principles of Marketing: 4th European Edition Philip Kotler, Gary Armstrong, John Saunders, Veronica Wong Prentice Hall ASDA Group Limited Hoovers.com [Online] Retrieved from website http://www.hoovers.com/ASDA/--ID__90031--/free-co-factsheet.xhtml on April 1, 2006 Tesco PLC Hoovers.com [Online] Retrieved from website http://www.hoovers.com/tesco/--ID__90426--/free-co-factsheet.xhtml on April 1, 2006 J-Sainsbury Hoovers.com [Online] Retrieved from website http://www.hoovers.com/j-sainsbury/--ID__40427--/free-co-factsheet.xhtml On April 1, 2006 Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. Wm-Morrison-Supermarkets Hoovers.com [Online] Retrieved from website http://www.hoovers.com/wm-morrison-supermarkets/--ID__90499--/free-co-factsheet.xhtml on April 1, 2006 Porter, Michael E (1980) Competitive Strategy, Free Press ASDA/WAL-MART A Corporate Profile [Online] Retrieved from website http://www.corporatewatch.org.uk/lid=800 on April 1, 2006 Michael Porters Generic Strategies Learnmarketing.net [Online] Retrieved from website http://www.learnmarketing.net/generic.htm on April 1, 2006 Read More