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It uses Porters generic cost leadership, Porters five forces ND Nations growth matrix tools in order to analyses the potential growth of Laid. There are recommendations to Laid on the strategically best way to grow the business Laid Laid started in 1946, when the Albrecht brothers took over their mother’s grocery store in Germany. According to (Ruddier, 2014) from the small provincial store, they built one of Germany’s biggest retailers, which is renowned for its low prices. Laid arrived in the UK in 1990 and has opened over 500 stores and has over 9000 stores in 18 countries.
Lid’s product range specializes in their own brand, which are cheaper than well-known brand labels. This is because they can control their prices at its distribution level. Laid does not only stock food products, they also stock items such as; underwear, toiletries and fishing equipment. Comparing Laid to the four major supermarket chain retailers there is a stark difference to how they function to how Laid functions. (Keynote, 2007) Illuminates that Laid stocks around one thousand product lines whereas the major chain retailers stock over three hundred thousand product lines.
This is beneficial to the less price sensitive consumer as there is more choice however, this also means products are more expensive. It is apparent that one of Lid’s marketing objectives is to grow its market share within the I-J market. Onionskin, 2014) Cites, when the recession hit there was an increase in demand for value for money. Citing further that market research identified that 80% of Lid’s customer base shopped at their competitors as well. According to (Tower, 2012) citing (Porter 1980) explaining, general substitution is able to reduce demand of a product, as there is a threat of consumers switching to the alternatives. Tower, 2012) Cites further, in the grocery industry this could be seen in the form of product-for-product r the substitution of a need and can be weakened by new trends, such as small chains of convenience stores emerging. Laid reacted quickly to this and created a strategy focusing on retaining consumer loyalty. To overcome this obstacle Laid started to demonstrate product quality according to (Ruddier, 2014) by creating a television campaign, giving the results of their blind taste tests that had been conducted amongst a cross section of shoppers.
Endorsing that the majority of consumers that enjoyed the famous brands also liked Lid’s ‘like’ brands. Effectively communicating Lid’s quality and value for money. Aniline, 2014) Explains, Lid’s direct challenge for the ‘Like Brands’ campaign was to increase market share from 2. 3% to 2. 5%, worth an extra IEEE million in revenue. From this (Aniline, 2014) added Laid increased its market share by nearly a third to 4. 8 per cent. Economic factors could be a concern to Laid, because with their new popularity it is likely to influence demand, costs, prices and profits.
Another issue that Laid overcame according to (Duke, 1993) was the shortage of vacant store sites. Laid took a defensive position and became competition for the big stores, which in turn enhanced people’s interest in he discount grocery retailers. (Gill, 2010) Explains that Laid are supplied by regional distribution centers and where possible, they source their products locally, which is also has further benefits as it helps to support local industry therefore promotes local responsiveness on top of this it is also beneficial to the environment due to a reduced carbon footprint. Attracting different segments of the market.
However, there are risks involved in using porters (Porter, 2008)cost leadership strategy. Although Laid are experiencing the success of growth with this model, everything Laid goes is focused around giving its customers value for money. If Laid could no longer provide value for money, for example loses contracts with key suppliers or competitors can offer better value for money. Laid would lose its unique selling point and therefore is likely to lose the majority of its customers. (Timeless, 2012) Highlights that Lid’s Faceable and Twitter pages encourage communication with its customers.
Citing further social media provides a platform through which Laid can interact with customers. This is an accurate way of finding out what the consumers think of the Laid brand and its products. From this Laid can create good customer feedback and these are consumers who recommend Laid to others. (COMA, 2013) Illuminates that Strategic analysts use (Porter, 2008) five forces to recognize whether products or services are potentially profitable. By understanding where control lies, the theory can also be used to group areas of strength, in order to improve weaknesses and avoid errors.
Using (Porter, 2008) five forces to highlight Lid’s strategies and its strengths and weaknesses. Buyer’s bargaining power: According to the (Government, 2010) supermarkets already set the standards of arcing, because of this the consumers have no choice but to buy at the price of the supermarkets. The ‘Big Four’ supermarkets compete with each other on price and unlike Laid they give their consumers a wide range of choice for most of their products, which in turn gives the consumer a broader choice therefore satisfying a larger market segment leading to consumer convenience therefore loyalty.
Concluding the majority of the supermarkets like Laid compete with its competitors on it cost leadership pricing strategies by offering ‘better’ value for money, offers and sales to retain their customers. Laid, uses this strategy needs to improve on its existing actions through value rather than price. Suppliers’ bargaining power: The suppliers’ bargaining power can be increased or decreased depending on the supermarket. Such as Tests who are wholesale which lessen the cost of preserving a supply chain.
Conversely, Laid has its own label products therefore has the same benefit as the bigger supermarket chains such as Tests when it comes to cutting down on suppliers’ cost (Government, 2010)Concluding that suppliers have less power over the supermarkets Threats of substitutes: The plea for healthy living derives from a movement the Government set to inspire the general public to eat and live healthily in order to minimize obesity. This policy facilitated supermarkets to generate value for consumers in providing them with products of high quality (Government, 2010).
However, the market segments that is generally interested in eating healthy are more likely to pay a premium for their chosen product which is a limitation for LAID because they have been surviving with a cost leadership strategy for years. According to (Hines, 2013) because of the generic tauter of supermarket products, low threats of substitutes and entrants, it could be seen as low rivalry. (Hines, 2013) Further explains that’s supermarkets could be categories as monopolistic due to the number of players in the industry and the power that they have.
However, Substitutes do not completely replace existing goods but may reduce the costs of producing the same product. Additionally, substitutes might limit the scope of profit. For example, using Tests strategic model by opening smaller convenience stores. Therefore substitute is seen as a low threat. Threats of new entrants: The threat of new entrants are low because of the supremacy of the major players – Tests, Sad, and Sunburst’s.
These supermarkets have the main market share and can invest and increase number of stores whenever they choose, this makes it difficult for new entrants to establish themselves, as the bigger competitors can price them out over a long period. According to (Sullivan, 2014) new entrants need to have large investment before it can rival any major player (Government, 2010) Competitive rivalry According to Onionskin, 2014) the threat of new competitor is low in food industry. Where there are many organizations already doing business.
A new organization can’t easily compete for a new place in the industry as it would need a huge investment. As establishments like Tests, Sad, Ginsburg, and Morrison already have the power to out price aggressive enough to eliminate any new competitors. In view of this there is a low threat of rivalry for Laid Analysis of Five Forces Five forces analysis would help Laid to understand the factors affecting profitability their industry, and according to (COMA, 2013) can help to inform decisions linking to, whether to increase capacity in the grocery industry; and developing competitive strategies.
With the supermarket industry constantly being changed by innovation it could indicate that (Porter, 2008) Five Forces model could have limited value over a long period of time since it represents one moment in time on an ever changing environment . Consequently, it is not suitable to develop a strategy on the basis of Porter’s models. (Anions, 1988) Matrix growth tool would be a sensible tool to use alongside Porter. Using SOOT and PESTLE on a regular basis to keep up with competitors, this helps organizations to remain competitive.
Conclusion When the recession hit there was an increase in demand for value for money. That market research identified that 80% of Lid’s customer base shopped at their competitors as well. Laid quickly adapted a strategy to overcome this and grow. Which is important for any organization. Their cost leadership strategy, although it works well for them is fundamentally floored, for instance if a competitor undercut their prices, it would be likely that Laid could sustain this strategy.
Laid has revealed its ability to adapt to the changing environment, they have achieved this by continuously reviewing their strategy and adapting, is crucial for the growth of a competitive advantage for Laid. Porter, 1980) Five forces have highlighted that; Laid compete based on pricing strategies by offering value for money, offers and sales to retain their consumer base. This strategy is reactive to the consumers’ demands and changing consumption trend. Laid, which already follows this strategy needs to improve on its existing contributions through value rather than price.
The threat of new entrants are low because of the supremacy of the major players – Tests, Sad, and Sunburst’s. However Five Forces model could have limited value over a long period of time since it represents one moment in time on an ever changing environment. Consequently, it is not suitable to develop a strategy on the basis of Porter’s models. Recommendations On analysis of the market environment, the competitors and the Lid’s strengths and weaknesses, several recommendations can be assumed in order to strengthen Laid market position. Porter, 1980) Recommends that by adverting; product quality, improving marketing and product distribution can improve organizations collective position. Using the Anions matrix tool (Anions, 1988) , Laid should adopt the following strategies to increase competitive performance. It would be practical for Laid to implement a strategy which requires little risk and is inexpensive giving that Lid’s competitive strategy incorporate cost Market penetration To continue to change customer perception about cheap products, and more towards a perception that their low prices also incorporate good quality products.
It should focus on building its reputation because according to (Aniline, 2014) it’s a factor of maintaining customer’s loyalty. Laid also needs to continue growing at the same rate to safeguard this, it ought to continue opening stores and start to put more focus on upturning more than one segment of the market for instance capturing the loyalty of middle class backgrounds, not only from lower social backgrounds. Like Ginsburg, Tests and now Morrison Laid should introduce a loyalty card to ensure loyal customers feel valued and therefore motivate them to continue shopping at Laid. Inner, 2009) Suggests that it would be advisable and beneficial be active in local communities, for example sponsoring local sports team, which according to (Inner, 2009) would not only be great public relations but also relatively inexpensive. Product development Laid needs to introduce new products regularly in order to grow and keep a captive audience. It may also consider introducing online shopping and delivery to satisfy customers that work and don’t get chance to do the weekly shop, or alternatively for the customers do not have access to a car.
There is also potential to push a ‘healthy living campaign to expand consumer base while improving on its internal operations through economies of scale Market development To continue working on its international portfolio, making breaking in to different cultures. Laid could expand their portfolio by branching in to local convenience stores. This would get the Laid brand more recognizable to its consumers and show the ‘big four’ supermarket they are a serious competitor in the food retail industry.