Marketing Channels Issues: Coles Supermarket - Essay Example

Analysis on Marketing Channels Issues al Affiliation Analysis on Marketing Channels Issues Marketing channels represent a variety of practises or activities and actions that are implemented to transfer the ownership of products and services from the point of production or manufacturing to the point of consumption. The success that business organizations are to achieve in the market in terms of how much profits they get highly depends on the marketing channels that they implement to ensure that the production and selling of their products are done effectively without loses or delay. A marketing channel comprises of individuals and organizations that are involved in the process of making products or services available for use by the consumer. This paper will focus on Coles supermarket and its marketing channel, as a retailer in Australia’s supermarket sector. Overview Australia is one of the countries that have the most concentrated supermarket sectors in the whole world and the practises of the two major supermarkets (Coles and Woolworths) that have characterized the sector as a duopoly. Over the past decade, several shifts have occurred that have shown an evolving consumer consciousness and a discontented supermarket sector (LaFrenz, 2014). The lack of competition among the retailers in the supermarket sector has reduced the incentives to keep prices at a considerably low level for consumers. The two supermarkets have the opportunity to wield substantial buyer power that has resulted in lower prices that are paid to the suppliers. The quality of products has also become an issue and the rise of private labelled goods, for instance milk, has become an issue of concern to suppliers and other retail competitors in the retail market. As such, the two supermarkets have been subjected to an ideological opposition that has caused public campaigns to prevent their entry into different towns and suburbs (Rural Industries Research and Development Corporation, 2010). This represents some of the issues that the two supermarkets have to deal with in terms of their market channels (LaFrenz, 2014). Coles supermarket, commonly referred to as Coles, was established in 1914 in Victoria, Australia. It has over 700 stores in the country and employs more than 100,000 employees in its business. It controls about 80 percent of the Australian supermarket sector along with Woolworths supermarket. It has revenue of approximately $32 billion and an operating income of about $2 billion. It operates under its parent company known as Wesfarmers. Coles Supermarket Chain The role of Coles Supermarket chain as a retailer is to interpret the demands of the customers and find the goods that the customers want, when they want them and in the way, they prefer to have them. Coles has significant buyer power in the fresh produce market, which affects the supplier and the product. Coles has habitually approached grocery retailing by considering the demand-oriented perspective. As such, the supermarket has ensured that it has seasonal produce or goods for customers, for instance apples, grapes and pears to ensure that the demands of consumers are met at the time they need the produce. The questions of low quality of products sold by Coles have been because of its distribution structure rather than reasons attached to the produce or goods sold by the retailer. Wardle and Baranovic (2009) states that long storage systems and longer traveling periods that are characteristic of the produce distributed by Coles mean that these produces might be “nutritionally compromised by the time it reaches the consumer” (Wardle & Baranovic, 2009:479). This means that the minimization of seasonal variation through controlled atmospheres throughout the year and over-reliance on statewide distribution could affect the quality of fresh produce. Coles has also been criticised for its aggressive pricing and market control over fresh produce. Coles Marketing Channel Coles interacts with suppliers and customers as a retailer in Australia. The retailer co-invests with its suppliers in Australia to provide quality and support lower prices of goods and services. For example, the retailer gets 96 percent of its fresh fruits and vegetables from suppliers in Australia. These products are homegrown meaning that Coles supports Australian suppliers more than foreign suppliers. Coles has shown that it values its customers and is committed to providing quality and cost effective products and services meant for its customers. The retailer has indicated that it plans a further reduction of cost especially on the weekly cost basket of shopping for consumers (Lindgreen, 2010). It has introduced ‘flybuys’ customer loyalty program intended to strengthen local marketing and ensure that that it maintains a strong customer base. To effectively engage with consumers, Coles introduced an online shopping alternative for customers to use and save cost and time of shopping at the retailer. It has indicated that online shopping is its strongest growing area (Supermarkets and Grocery Stores in Australia Market Research | IBISWorld, 2015). The retailer has had a strong presence online and plans to extend the reach of its online services. It has recorded an increased productivity by using the online shopping option because more customers have purchased products from the retailer (Cameron, 2014). It has created a mobile-enabled website that enables customers to login easily and make purchases without having to look for computers or going to the store physically. The expansion of its online shopping services included wider deliver and Click & Collect reach The introduction of private label groceries such as milk has also helped Coles to interact with its customers even further because private label goods ensures that the retailer maintains a lower cost for such products and prevents competitors from taking its customers. SWOT Analysis Strengths It controls a larger share of the domestic food and liquor market in Australia Has an unmatched advertising and branding in Australia’s retail market. Has an attractive pricing strategy providing promotional offers and customer loyalty price cuts Has different generic brands to address the needs of different consumers Weaknesses Has negative publicity due to hard-line negotiations with Australian suppliers Relies on state-wide distribution network It operates on lower margins compared to competitors Opportunities To have a greater control of the supply chain to increase efficiency and maximum profitability To expand to new areas within Australia and also to other regions globally To conduct strong corporate social responsibility through sponsorships to boost its business To conduct stronger marketing initiatives to attract more customers Private label goods can offer a competitive edge over competitors (The Australian, 2012). Threats Intense competition from other companies such as Woolworths forcing prices to go down The entry of new competitors such as Aldi into the retail market Customer confusion because of generic brands Consumers might opt for smaller retailers for convenience The food and liquor market in Australia is constantly changing as competitors offer new deals Coles Supermarket Marketing Strategies Coles supermarket has implemented aggressive marketing and price discounting strategies that have been beneficial to the supermarket group, Coles. This strategy has helped the retailer gain profits in the tough retail environment and achieves important sales growth. The retail business has implemented this strategy as an important aspect that has helped it improve the value and shopping experience of consumers (Ferrell, ‎Niininen & Lukas, 2011). The supermarket has started replacing stores with bigger stores and plans to open other new stores. In addition, the retailer has refurbished most of its stores as a statement of a strong platform for solid growth in the coming years. Rolling out bigger stores is a marketing strategy for the retailer to win market share from other competitors by providing more room to accommodate more customers and reach new markets in the country where it has not established it stores before. The price wars among competitors have been significantly high. Therefore, to ensure that Coles remains a major competitor such strategies have been helpful in ensuring that the retailer takes advantages of the opportunities present. As such, Coles supermarket has remained on top because of its marketing strategies (Armstrong, Adam, Denize & Kotler, 2014). Problems Affecting Coles Marketing Channel Despite the fact that Coles has remained as one of the strongest competitors among retail supermarkets in Australia, it has several problems related to its marketing channel. First, Coles supermarkets depend on a statewide distribution channel. This has caused problems for the retailer because it has challenges of ensuring quality of its products especially the food products. As such, questions have been raised on the ability of Coles to distribute fresh and quality fruits and vegetables for its customers, yet it depends on a single distribution channel (AAP, 2011). Secondly, the retailer has problems regarding its treatment of suppliers in the country. Reports of supplier bullying have been laid against Coles supermarkets. The Australian Competition and Consumer Commission (ACCC) investigated claims made against Coles that it was bullying suppliers. This is a bad reputation for a retailer as large as Coles and could destroy its position in the market because reliable suppliers, as well as loyal customers, could decide to go to competitors who have a good reputation unlike Coles. Whether the allegations are true or not, it paints a bad image of Coles. Bad image is enough to ruin the reputation that the retailer has built over the years (AAP, 2011). The extensive power of Coles is responsible for major issues that have affected the domestic suppliers in the Australian food system. The shrinking market share of independent retailers has left many suppliers with little choice and options. As such, they have been forced to negotiate with Coles and Woolworths, which are two of the major retailers in Australia. This means that the two retailers have a bargaining edge over the suppliers making them dependent on the retailers as channels of reaching consumers. This has led to the deprivation of farmers and food producers because Coles and Woolworths are not flexible in negotiating contract terms with suppliers. Despite setting prices of buying products from suppliers to be low, Coles has been criticized for setting high prices for goods that it sells to customers because of its strong position and unrivalled market share. Therefore, this means that both suppliers and consumers are suffering from the actions of the retailers in the duopoly supermarket retail sector (Langley, 2014). Recommendations As stated above, the major problems that affect Coles Supermarket as a retailer are related to issues of supplier bullying, its distribution network and high pricing. Therefore, the Coles Supermarket has to do several things to ensure that these issues do not destroy its position in the market and its market share standing. Regarding the issue of supplier bullying, the retailer should Establish a new strategy of procurement and supplies that gives suppliers a platform to negotiate fairly rather than based on the need to sell just because they do not have any other place to take their supplies to. The new strategy should address all the previous complains and allegations of bullying to restore supplier confidence Secondly, the retailer should provide an open negotiation with suppliers, for instance through advertising where potential suppliers can apply. Those who win the bid can the negotiate on an open platform where representatives of the retailer, the suppliers and the Australian Competition and Consumer Commission (ACCC) are present to ensure that the negotiation is done fairly and in a satisfactory manner to all the parties. Thirdly, the retailer should come out and apologize to the public for supplier bullying. This will restore the public’s confidence to the retailer and help to strengthen its market share Regarding its distribution, the retailer should Establish man distribution channels throughout the country where its stores are located to ensure that it distributes fresh and quality products to its customers. This can be done by outsourcing the distribution to ensure that there is more efficiency in the distribution network Regarding high pricing Despite the fact that the market structure is a duopoly, Coles should not base its pricing on the competition in the market but on the consumer. The retailer has been said to have set high prices for goods, yet it outsources them for a very low price. As such, the suppliers and the consumers suffer at the expense of the retailers profitability. Therefore, the retailer should provide market friendly prices that are not exploitative of the public. References AAP (2011). Dont trust Coles, dairy farmers say, The Age. Retrieved May 10, 2015 from: http://www.theage.com.au/business/dont-trust-coles-dairy-farmers-say-20110308-1blrl.html Armstrong, G., Adam, S., Denize, S. M., & Kotler, P. (2014). Principles of marketing. New York: Routledge. Ferrell, O.C., ‎Niininen, O & Lukas, B (2011). Marketing principles. South Melbourne, Vic: Cengage Learning. Cameron, N. (2014). Digital marketing in 2014: Where marketers are placing their bets - CMO Australia. Retrieved from http://www.cmo.com.au/article/537065/digital_marketing_2014_where_marketers_placing_their_bets/ LaFrenz, C. (2014). The supermarket duopoly is starting to fray | afr.com. Retrieved from http://www.afr.com/personal-finance/shares/the-supermarket-duopoly-is-starting-to-fray-20141115-11n8m4 Langley, S. (2014). Wesfarmers reveals strategies to grow Coles and other businesses | Australian Food News. Retrieved from http://ausfoodnews.com.au/2014/05/28/wesfarmers-reveals-strategies-to-grow-coles-and-other-businesses.html Lindgreen, A. (2010). Market orientation: Transforming food and agribusiness around the customer. Farnham, Surrey, England: Gower Rural Industries Research and Development Corporation (2010). Reasons why Farmers Diversify: Northern Midlands, Tasmania. Retrieved May 10, 2015 from http://www.farmpoint.tas.gov.au/farmpoint.nsf/downloads/1A77E4C8A7884A0ACA2577FB0001A7FA/$file/Reasons_Why_Farmers_Diversify_RIRDC.pdf Supermarkets and Grocery Stores in Australia Market Research | IBISWorld. (2015). Retrieved from http://www.ibisworld.com.au/industry/default.aspx?indid=1834 The Australian. (2012). Bigger is better for Coles supermarkets, Wesfarmers investors told. Retrieved from http://www.news.com.au/finance/business/bigger-is-better-for-coles-supermarkets-wesfarmers-investors-told/story-fnda1bsz-1226373861838 Wardle, J. & Baranovic, M. (2009). Is lack of retail competition in the grocery sector a public health issue? Australia and New Zealand Journal of Public Health, 33(5), pp 477–581 Read More