The objective of this paper is to answer the four questions raised in the case study on strategic positioning.
Question 1 (a): Using Porter’s generic strategies, explain how Sainsbury is positioned relative to its competitors.
Answer: In 1985, Michael Porter suggested three main strategic alternatives for firms (Hawks, 2016). These three strategies are cost leadership, differentiation and focus strategies. In the cost leadership and differentiation strategies, the target market is broader and industry level. The cost leadership strategies, as the name suggests, focuses on offering products and services at a lower cost than competitors. Differentiation strategy involves providing a product offering that is perceived unique by the customers. Focus strategy targets a narrower set of customers. Sainsbury is one of the leading supermarket chains in the United Kingdom. It was founded in the year 1869. The company operates through a mix of supermarkets, local convenience stores and online selling. The firm has grown significantly under King’s leadership, in terms of reach, volume and profits.
Using Porter’s generic strategies, Sainsbury’s business strategy fits in the differentiation quadrant. There are four main aspects of Sainsbury’s differentiation strategy. First, the quality and range of products sold by Sainsbury is perceived better than its key competitors. Sainsbury strategy of selling quality and tasty food at fair price even during recession helped it to differentiate itself over competition that were into price war and pricing driven strategy. It also sells a wide range of products targeting different social class and segments under one roof. By introducing private label, Sainsbury was able to bring in wide range, apart from reducing dependency on large suppliers that further reduced the costs. Sainsbury also expanded its footprint to gain from buying economies of scale and improve its profitability.
Second, Sainsbury increased its presence by relying on convenience store format to reach out to higher number of customers as compared to its competitors that still believed in the supermarket or large store format. So, having a Sainsbury store at customer’s doorstep, convenience or supermarket, increased the likelihood of customers using this brand for their daily purchasing needs and strengthened Sainsbury’s competitive positioning.
Third, Sainsbury used technology as a booster for its differentiation strategy. It was one of the early adopters of technology in UK for sales ordering, inventory management and in-store scanning, helping it to manage ordering a wide range of products seamlessly. Further, by fixing glitches in newly adopted software, it was able to match demand and supply better. This greatly improved consumer satisfaction as there were fewer incidences of stock-outs.
Fourth, Sainsbury expanded its consumer base by introducing multiple range of products for various consumer segments. For its quality conscious consumers, Sainsbury focussed on quality, private labelling and own branding. It ensured, in terms of quality, it was positioned better to its competitors like ASDA. For price conscious consumers, it introduced the brand-match marketing strategy. This attracted the lower-income and price-sensitive customers and provided a choice to purchase at the Sainsbury.
Hence Sainsbury adopted differentiation as part of its strategy to win over competition while the competition, TESCO and ASDA, adopted cost leadership and value-oriented strategy indulging in price wars. The price wars also undermined the profitability of the competition. Sainsbury, on the other hand, was able to improve its profitability by focussing on quality and charging better margins from consumers for its branded products. So, as compared to competition, Sainsbury was at a better position, in terms of customer reach and profitability both.
Question 1 (b): Critically discuss the limitations of Porter’s generic strategies and explain how the Strategy Clock helps to overcome these limitations.
Limitations of Porter’s Generic Strategies
There are three main limitations of Porter’s generic strategies. First, Porter’s suggestion that cost leadership and differentiation strategies are mutually exclusive appears faulty in the contemporary business environment. He claimed that a firm will have to focus on one strategy at a time to have a clear directional go-ahead for the future; otherwise, the firms will get stuck in the middle. But, in reality, hybrid strategies do exist and have proven successful. There have been companies that adopted a mix of cost and differentiation strategies and have succeeded. For example, Ikea has differentiated itself from competition by being the first mover, difficult to copy and using innovative technology. But, the firm has also been successful in reducing cost by getting into low-cost supply arrangements with Chinese suppliers. Today, Ikea is successful business model offering a wide range of innovative products at an affordable price. So, in reality, strategies are usually not in black and white.
Second, there are risks involved with using a single strategy. The risks associated with cost leadership strategy are obsolescing of technology, imitation by competition and changes in consumer preferences (Tanwar, 2013). Companies invest a lot of money in gaining the cost advantage. If the technology becomes obsolete or competition is able to copy the idea, the entire investment and competitive advantage will be lost. In differentiation strategy, availability of substitutes and competition from cost leaders is a big risk. In today’s competitive environment, firms cannot afford to lose market by adopting a single strategy.
Third, the generic strategies are too broad (Datta, 2010). They do not provide strategic direction to organisations. There is no problem with the logic of generic strategies, which appears strong and flawless. But, the assumption that cost leadership is the sole route to market leadership is flawed (Datta, 2010). Another view of Porter that differentiated products are always sold at a premium is also not contextual in present circumstances.
Overall, Porter’s generic strategies are too broad, rigid and restraining. Some of his suggestions appear flawed in the present situation of extreme competition.
Strategic Clock and Generic Strategies
The strategic clock overcomes in limitations of generic strategies in mainly two ways. First, strategic clock assumes that competition edge can be gained by catering to customer’s needs better than the competition. So, unlike generic strategies that focussed on single strategy, strategic clock provides an opportunity to combine strategies to provide better offering to consumers. For example, while generic strategy would suggest that Apple should focus on differentiation (innovation) and charge premium. Strategic clock would advise Apple to offer innovative products, but in a price range that is at par with the competition. So, unlike Porter’s generic strategy, it does assume that consumers are either cost-conscious or quality-conscious. It suggests that consumers look for “value for money”.
Second, strategic clock provides clearer strategic direction than generic strategies. Porter’s proposed three strategies that appeared rigid and limiting. But, strategic clock is more flexible and provides eight strategic directions that are more applicable in the contemporary business settings. While generic strategies do not provide for hybrid strategies, the strategic clock suggests that firms can use a combination of cost-leadership and differentiation strategies if the perceived customer benefits from such bundling product are higher.
So, strategic clock is a more flexible, practical and inclusive strategy than Porter’s generic strategies.
Question 1 (c): From a strategic group’s perspective, what is the difference between a full-size supermarket and a convenience store.
First, the range of products and services available in a supermarket is much more diversified than that of a convenience store. Supermarkets aim at catering to all the grocery needs of a customer under one roof. Convenience stores, on the other hand, have a limitation in terms of its extent of product diversity. It mainly caters to the emergency grocery requirements of a customer by being present near his door step with limited stock of goods. In terms of service, supermarkets provide a pleasant shopping experience. They are self-serving, air-conditioned, spacious and well-lighted. They have separate aisles for separate product categories immaculately stacked and labelled for customer’s convenience. In contrast, convenience stores may or may not be self-serving; usually people behind the counters help customers with the products they demand. Convenience stores are much smaller, which limits their ability to stock and stack a large variety of grocery products. So, the grocery range offered by convenience stores is, sometimes, as low as 10 per cent of that offered in a supermarket (Ruddick, 2014).
Second, geographical coverage is higher for convenience stores than supermarkets. So, convenience stores are available right at your door step. In comparison, people have to travel longer distances to reach a supermarket. The investments in supermarkets are so high that firms have to limit the number of supermarkets that they can have in a location. Convenience stores have their merits as they are simple store formats and require low investments. For this reason, large retail giants like Sainsbury and Tesco are adding convenience stores to increase their geographical reach. So, there has been an astounding rise in the count of convenience stores in the ten years (Ruddick, 2014).
Third, convenience stores have more scope for localisation as compared to supermarkets that are more standardised formats. Given their scale of business and their local presence, they can innovate and bring out the local flavour with products that will appeal the local consumer. The convenience stores are also getting into fresh foods like supermarkets.
Fourth, supermarkets offer better quality products at a better price, in most of the cases. Owing to their large scale of business, supermarkets order in bulk and able to negotiate better with their suppliers. Supermarkets are also able to ensure better quality in fresh food and ready to eat products given their control over their suppliers and large volume of business. The products at a convenience store are usually priced slightly higher than that at the supermarket stores.
Fifth, degree of vertical integration is also higher in supermarkets. Supermarket giants are now launching self-branded food products. Sainsbury is one such example. It introduced a range of food products with private labels and self-branding. These products are now well accepted and demanded by the customers. Not only this, the supermarkets can afford to have long-term contractual relationship with its key suppliers, which would be difficult for a convenience store to maintain.
So, both convenience stores and supermarkets have their space and importance in the retailing market. While the former offers ease of shopping and time saving to consumers, the latter offers pleasant shopping experience, better prices and better quality products. Now, big retailers are getting into the foray of convenience store formats. To some extent, their convenience stores are competing with their supermarkets for the same set of customers. This needs to be taken into account by large retailers while designing their retailing strategy.
Question 1 (d): Explain why is it difficult for competitors to duplicate a well-positioned competitor.
It is very difficult for competitors to duplicate a well-established competitor. It might be possible to copy the competitor’s products and its advertising campaign, but copying the competitor is difficult. There are four main reasons that make it difficult to copy.
First, a well-positioned competitor acts single-mindedly on its competitive edge and the benefits that accrue from it (Stalk and Lachenauer, 2004). It exploits its commanding position to innovate, take risks, encounter competition and test its limits. The attitude to fight and to win, and their intensity of passion helps them position ahead of competition. Other competitors may or may not have the mettle to take such risks and develop such winning attitude. At times, some companies are unable to even spell their competitive advantage and quantify it. As a result, they may prefer to watch the game, rather than playing it, in the fear of getting hurt and burning their fingers. So, the endeavour and strive to do the extreme to build and maintain the competitive advantage is what makes the well-positioned player different and difficult to copy. For example, Apple is a well-positioned player in selling of mobile handsets. Differentiation has been its competitive advantage. So, the firm has strived hard to retain this unique value proposition, be it in terms of product innovation, design, distribution, store layout or phone features. The number of new product launches is lesser for Apple than its competitors like Samsung, but there is always a buzz created around the launch of new Apple phone. Samsung cannot duplicate this position because it is difficult to change the way of working of an organisation to such a core level. Apple’s innovativeness is imbibed in its culture as well.
Second, sometimes competitors may not want to duplicate their well-positioned competitors. In the case of Apple, Apple products create a buzz, but the company’s shares do not behave in a similar manner. In the electronic goods industry, Apple’s P/E ratio is one of the lowest as compared to its peers. So, rather than difficulty, competitors may not feel the need to copy their well-established competition.
Third, duplication is a tedious, time taking and expensive process. Duplicating the core competency of competition is not easy. It requires enormous passion, faith and effort. It is a gradual and slow process. So, people are not inclined or motivated to work on a fire-fighting mode as results are not immediate. For example, Apple believes that integration is a key competency that the company has and its competitors do not have. But, the point is that the process of integration is no rocket science and can be copied. It is just that it requires due time, effort and energy that firms are not always open to giving. This is because in the era of extreme competition, companies have to focus on their short-term dynamic environment as well. If they lose focus of their existing position in the short term, they will be out of the market in no time.
Four, competitive advantage comes with a cost. Over the years, the well-positioned player would have reduced the costs associated with its core competency. Now, firms that would like to copy the well-positioned player will be able to do so at a higher cost. If the cost of creating the uniqueness is higher than the competition, the firm will not gain from it. So, such projects may appear financially unviable and are deemed difficult to attempt.
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Hawks, Douglas (2016). Porter’s Generic Strategies: Low Cost, Differentiated and Focus. Available at: < http://study.com/academy/lesson/porter-s-generic-strategies-low-cost-differentiated-focus.html> [Accessed 3 Feb 2016].
Ruddick, Graham (2014). The biggest problem for supermarkets? Their own convenience stores. Available at: <http://www.telegraph.co.uk/finance/businesslatestnews/11205154/The-biggest-problem-for-supermarkets-Their-own-convenience-stores.html> [Accessed 4 Feb 2016].
Stalk, George Jr. & Lachenauer, Rob (2004). Hardball: Five Killer Strategies for Trouncing the Competition. Available at: < https://hbr.org/2004/04/hardball-five-killer-strategies-for-trouncing-the-competition> [Accessed 4 Feb 2016].
Tanwar, Ritika (2013). Porter’s Generic Competitive Strategies. IOSR Journal of Business and Management, [Online] Available at :< http://iosrjournals.org/iosr-jbm/papers/Vol15-issue1/B01511117.pdf> [Accessed 4 Feb 2016].