Implementing Yin-Yang - 1 -

WELCOME To ALL OF YOU – (Strategy) RAHUL JAIN (Striving for excellence) BCOM (H), PGPM, FCS

Questions What is a retailing strategy? How can a retailer build a sustainable competitive advantage? What steps do retailers go through to develop a strategy? What different strategic growth opportunities can retailers pursue? What retailers are best positioned to become global retailers?

Due to the emergence of –New competitors –New formats –New technologies –Shifts in customer needs More attention to long-term strategic planning than ever before

Strategy Formulation - 5 -

Stages in the Strategic Planning Process

Elements in a Situation Audit

- 8 - Strategy formulation... An organization must select any of innumerable ways of seeking to attain its objectives. Strategies define how organizations should use their resources to meet their objectives. Hence, … strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

Scanning the Environment u Opportunities u Barriers u Trends ( Social, economic, technological Buzz) u Competitors u Customers u YourSelf ( Strengths & Challenges)

YOU HAVE TO PLAY BOTH

Elements in Retail Strategy Target Market the market segment(s) toward which the retailer plans to focus its resources and retail mix Retail Format the nature of the retailer’s operations—its retail mix Sustainable Competitive Advantage an advantage over the competition © image100 Ltd

Attractiveness -- Large, Growing, Little Competition  More Profits Consistent with Your Competitive Advantages Criteria For Selecting A Target Market Rim Light / PhotoLink / Getty Images

Competitive Advantage

Sources of Competitive Advantage More Sustainable Location Customer Loyalty Customer Service Exclusive Merchandise Low Cost Supply Chain Management Information Systems Buying Power with Vendors Committed Employees Less Sustainable Better Computers More Employees More Merchandise Greater Assortments Lower Prices More Advertising More Promotions Cleaner Stores

Mission – Basic reason for existence Mission: How do we intend to win in this business? Factors influencing Mission Stakeholders Internal resources and Power Values of top management Past development of firm Business definition Products Markets Function (Technology and Processes)

Vision- Yin Yang Core Ideology (Core values and Purposes) Envisioned Future (Vivid description) A vision, is more encompassing. It answers the question, "What will success look like?" It is the pursuit of this image of success that really motivates people to work together

Starbucks’ Mission and Vision Starbucks’ Mission Starbucks’ mission is to “establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow” (Starbucks Website, 2006, p.1). Starbucks strategic plan to make its mission a reality is evidence by the company’s rapid expansion worldwide. Starbucks has locations in all 50 States in the US, plus the District of Columbia and Puerto Rico (Starbucks Company Fact Sheet, 2006). Starbucks can also be found in 36 countries outside the US (Starbucks Company fact Sheet, 2006). Starbucks is committed to buying only certified coffee in pursuit of selling the finest coffee. Starbucks’ Vision According to the company’s profile, (2006) its vision is to make Starbucks coffee the most recognized and respected brand in the world by using high quality roast beans to make coffee beverages along with other products. The company wants to develop enthusiastically satisfied customers at all times. They want to make positive contributions to their communities and their environment

How to create value for the corporation as a whole 2. Corporate-Level Strategy (Companywide Strategy) - low cost - differentiation - integrated low cost/differentiation - focused low cost - focused differentiation How to create competitive advantage in each business in which the company competes 1. Business-Level Strategy (Competitive Strategy) A Diversified Company Has Two Levels of Strategy

Competitive Strategy

Low Cost Strategy Key Criteria Standard Product Compete Based on Price: –Low costs –High volume –Low margins Achieving Low Costs Controlling Cost Drivers Reconfiguring Value Chain Characteristics of Cost Leader

Low Cost strategy

Controlling Cost Drivers 1. Economies of Scale / Capacity Utilization 2. Learning Curve Effects 3. Reduce Input Costs (monitor suppliers) 4. Economies of Scope 5. Consider Vertical Integration & Outsourcing 6. Process Engineering / Simplification 7. Minimize Overhead

2 2 How to obtain a Cost Advantage 1 1 Control Cost Drivers Alter production process Change in automation New distribution channel Direct sales in place of indirect sales New raw material New advertising media Backward integration Forward integration Change location relative to suppliers or buyers Reconfigure the as needed Value Chain

The Major Risks involved with a Cost Leadership Business Level Strategy The Major Risks involved with a Cost Leadership Business Level Strategy Technological changes Focus on efficiency causes Cost Leader to overlook changes in customer preferences Competitors imitate Value Chain Competitors imitate Value Chain

Examples of Cost Leadership Nissan; Wal-Mart; Koutons

Value provided by unique features and value characteristics Command premium price Superior quality Key Criteria Differentiation Business Level Strategy Rapid innovation Prestige or exclusivity High customer service

Differentiation Strategy

Differentiation Business Level Strategy Requirements Constant effort to differ- entiate products through: * Developing new systems and processes * * Maximize Human Resource contributions through low turnover and high motivation Product R&D capabilities * Shaping perceptions through advertising Value provided by unique features and value characteristics Command premium price Superior quality Rapid innovation Prestige or exclusivity High customer service

Differentiation Business Level Strategy Differentiation Value Chain activities Effectiveness with Differentiation grows out of Value Chain activities Heineken beer Raw materials Caterpillar tractors Service buyers’ needs quickly anywhere in the world Steinway pianos Raw materials & Workmanship Examples: Intel microprocessors Technological superiority Mercedes Benz autos Technology and Workmanship

Direct resources to certain value chain activities to build competitive advantage Serve narrow market segment more effectively than industry-wide competitors Firm lacks resources to compete industry-wide Large firms overlook small niches Opportunities exist because: * * * * * * * * Focused Business Level Strategies Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

The Major Risks involved with a Focused Differentiation Business Level Strategy The Major Risks involved with a Focused Differentiation Business Level Strategy “Outfocused” Preferences of niche market change to those of broad market Large competitors enter niche market

Focus Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier) Strategy - Cost Focus Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's". Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products

Focus Differentiation Strategy

Focus Low cost Strategy

Flexible Manufacturing Systems Firms using an Integrated Strategy: Dual Strategic Emphasis: Upscale product Competitive pricing (“best value”) Dual Strategic Emphasis: Upscale product Competitive pricing (“best value”) Information Networks across multiple business units Integrated Low Cost/Differentiation Strategy Total Quality Management (TQM)

Integrated Low Cost strategy

1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts Key Questions of Corporate Strategy

Growth Opportunities

Growth Strategies  Market Penetration  Market Expansion  Retail Format Development  Diversification  Related vs. Unrelated Ryan McVay/Getty Images

Market Penetration Attract customers from target market – Walgreens “on every corner” Get current customer to visit store more often or buy on each visit Cross Selling – sales associates in one department sell complimentary merchandise from other departments Example: Manicurist sells services plus hand lotion or nail polish Example: Salesperson sells leaf blower directs customer to electrical department to purchase a 100 foot extension cord.

Market Expansion Market expansion growth opportunity involves using the existing retail format in new market segments –Dunkin’ Donuts – new stores (and at gas stations) outside northeastern –Abercrombie & Fitch (for college students) opens lower- priced chain Hollister Co. for high school students

Retail Format Development Develops a new retail format with a different retail mix for the same target market Multi-channel retailing UK based TESCO: –Tesco Express: small stores located close to where customers live and work –Tesco Metro: bring convenience to city center location by specializing in ready-to-eat meals –Tesco Superstores: traditional stores –Tesco Extra: one-stop destination with the widest range of food and non-food products

Diversification Introduces a new retail format toward a market segment that is not currently served by the retailer Related diversification Unrelated diversification Vertical integration into wholesaling or manufacturing

China –Increasing operating costs –Lack of managerial talent –Underdeveloped and inefficient supply chain India –Prefers small family- owned stores –Restricts foreign investment Global Growth Opportunities

Key to Success in Global Retailing Globally sustainable competitive advantage Low cost, efficient operations - Wal-Mart, Carrefour Strong private label brands: Starbucks, KFC Fashion Reputation - The Gap, Zara, H&M Category dominance – Best Buy, IKEA, Toys R Us Adaptability Global Culture Financial Resources

Assignment for Class- IV u Key learnings u Word document: Business Landscaping of JAKAL Case. ( one day before class)

Assignment for class- V u Log Process 1 ( Check word document)