2 Competitive Advantage

50 %
50 %
Information about 2 Competitive Advantage

Published on March 18, 2008

Author: Ethan

Source: authorstream.com

Slide1:  Competitive Advantage: Porter, Michael E. ‘Competitive Advantage’ Tesco Case Study “The Shop that Jack Built” Stuart Challinor Slide2:  Tesco: Tesco have driven down the cost of many items by superior supply chain economics. They have become the No1 retailer in the UK and are now intending to become the global No1 retailer. They have established a distinct Competitive Advantage PRICE DIFFERENTIATION PRODUCT DIFFERENTIATION BRANDED MARKETS Pence / 420g can 33 21 09 COMMODITY MARKETS Slide3:  Routes to Competitive Advantage: Why are some company’s more successful than others? Either: Productivity Advantage = Lower costs / unit of output Economies of scale - Spreading overheads - Specialisation and division of labour - Greater purchasing power The Experience (Learning) Curve - All costs decrease with output (real unit costs in relation to cumulative output). N.B. Market share has a strategic influence on costs through economies of scale and the experience effect. And / or Differential Advantage = products or services that offer greater benefit (utility) to customers. Company’s often seek to achieve both productivity and differential advantages but few succeed. Slide4:  Economies of Scale Slide5:  Economies of Scale: UK Lamb Production Source: Newcastle University Tesco Study 1999 Lamb (£/ewe) Flock Size Under 200 200-499 500+ Output 66.62 67.08 67.92 Variable Costs 23.81 24.58 26.79 Fixed Costs 46.91 39.26 30.67 Overheads 15.04 12.71 10.30 Total Costs 85.76 7 6.55 67.76 Net Margin -19.14 -9.47 0.16 Think about it………:  Think about it……… How long does it take the following to change a car wheel: A novice driver Someone with 20 years driving experience A ‘Kwik Fit Fitter’ Fernando Alonso’s Formula 1 Grand Prix pit crew. Slide7:  The Productivity Learning Curve All costs decrease with accumulated experience (know-how). Empirical studies across a wide range of business activities suggest a range of 10/30% cost reductions with each doubling of output with a mean value of 15%. Achievement of a dominant market share early in a product’s life cycle provide an organisation with unassailable cost advantages over competitors which only the introduction of new technology / business processes can overturn. Differential learning slopes may provide the incentive for organisations to integrate vertically e.g. into other areas of the marketing chain. Slide8:  According to Michael Porter Generic Strategies Matrix Porter, M.E. (1980) Competitive Strategy Free Press, New York Differentiation High Niche Outstanding success Disaster Lowest Cost Relative Costs Low High Low Slide9:  Strategic Direction Matrix: UK Food Retailing ADDED VALUE PRODUCTIVITY The Middle Ground Netto Aldi Lidle M&S Foodhalls Tesco Sainsbury Waitrose ASDA/Walmart Iceland Morrisons Somerfield Co-Op Budgen Fortnum & Mason Fenwicks Food Hall Sultana’s Dunelm Foodstore Independent Grocers Spa, VG, Mace Franchises Independent grocers are under pressure: they have few cost advantages (scale) and undifferentiated products of low value. Options are to move to the right (e.g. by joining a franchised buying group) to benefit from scale or to enter a niche market (e.g. by concentrating on speciality food or service). Cost and value retailers are most comfortable (and profitable): they have products with distinctive values and are cost-competitive through scale and experience. They occupy the high ground and are difficult to attack. There is no comfortable middle ground between cost leadership and added value: because of lack of meaningful differentiation. This is where the retail price wars take place. Retailer demographics ACNielsen Homescan:  Retailer demographics ACNielsen Homescan No 1 in Retailing from East End to Tokyo via Dublin, Budapest Warsaw, Prague, Soeul Taipei:  No 1 in Retailing from East End to Tokyo via Dublin, Budapest Warsaw, Prague, Soeul Taipei Stuart Challinor Stuart.challinor@ncl.ac.uk Slide13:  Purpose & Values Purpose: “To create value for our customers, to earn their lifetime loyalty.” This statement continues to be at the centre of all we do. Our two values drive the whole way we do business: 1. No one tries harder for customers: Understand customers better than anyone Be energetic, be innovative and be first for customers Use our strength to deliver unbeatable values to our customers Look after our people so they can look after our customers 2. Treat people how we like to be treated: All retailers, there’s one team..................The Tesco Team Trust and respect each other Strive to do our very best Give support to each other and praise more than criticise Ask more than tell and share knowledge so that it can be used Enjoy work, celebrate success and learn from experience. Slide14:  Differentiation by Tesco Major investment in customer attitudinal research: to provide the products and services that customers want. This is the main reason for Tesco establishing a competitive advantage: They are ATTUNED to customers needs and wants and have ‘grown up with customers changing lifestyles’: Major investment in new out-of-town superstores: convenient for shopping by car (with petrol stations). Development of smaller, local stores. Led the way with customer loyalty cards. Very innovative in NPD: currently concentrated on organic foods. Development of Tesco own-branded food range. Very close relationship with their suppliers: to drive down costs and offer better value to customers. Differentiation by Tesco:  Differentiation by Tesco Diversification into non-food areas e.g. household furnishing, electrical goods, clothing (discounting major brands eg. Levis), pharmacy and cosmetics, financial services (with higher margins). Very well trained, helpful staff eg. on the check-out, bag packers, roller-blade assistants. Community involvement eg. they employ people with learning disabilities on the check-out , Downs Syndrome people as store ‘greeters’ (supervised by a mentor). Now developing into new markets e.g. Ireland, Poland, the Czech Republic, Hungary, Korea, Malaysia, Thailand, Taiwan, Japan. Slide16:  Changes in Procurement with move to Integrated Supply Chain Management Peck, 1998 Partnerships in the Supply Chain, Council of Logistics Management R&D Marketing Logistics Operations Key Account Co-ordination Supplier Development IS IS To: relationship based Supplier Customer Supplier Customer Ian McLaurin, Architect of TESCO’s success Old ‘deal-based’ procurement Retailer negotiates with Suppliers: volume, type, delivery etc maintains warehouse working capital held by the retailer no integration of sales and production no integration of market research and NPD:  Old ‘deal-based’ procurement Retailer negotiates with Suppliers: volume, type, delivery etc maintains warehouse working capital held by the retailer no integration of sales and production no integration of market research and NPD Research & Development Sales Production Planning Market Research Purchasing EPOS Warehouse Store Production Line Transport Retailer Supplier Integrated Supply Chain Management Retailers and Suppliers (under pressure from the multiples) realign Production lines driven directly by retailers EPOS systems Suppliers now carry stock Supplier NPD driven by Retailer market research Balance of Power now Retailer driven :  Integrated Supply Chain Management Retailers and Suppliers (under pressure from the multiples) realign Production lines driven directly by retailers EPOS systems Suppliers now carry stock Supplier NPD driven by Retailer market research Balance of Power now Retailer driven New Product Development Key Account Co-ordination Supplier Development Store Market Research Warehouse Production Line EPOS Production Planning Retailer Supplier Manufacturers Own Brand or Supermarket Own-Label? …not an easy decision:  Manufacturers Own Brand or Supermarket Own-Label? …not an easy decision Independent Brand ♥ Higher prices (not necessarily margins). ♥ Independent marketing strategy ♥ Strong bargaining position? ♥ Demands access to shelf space?  Much higher costs  Danger of being squeezed off the shelves by own-label  Listing fees (bribes?) Supermarket Own Label ♥ Volume: economy of scale ♥ Lower product development costs ♥ Lower market research costs ♥ No advertising costs ♥ Lower marketing and selling costs ♥ Rapid market intelligence: EPOS ♥ Access to prime retail locations.  Lower prices (not necessarily margins)  Weak bargaining position  Vulnerability to loss of contract  Need for volume: risk of over-trading? TimeLine: gestation:  TimeLine: gestation 1924: Founded – Sir Jack Cohen, “pile it high, sell it cheap”. 1930: Growth in the London Area 1947: Floated on Stock Exchange @ 25p 1948: First self-service store: St Albans 1956: First self-service supermarket: Maldon, Essex. 1960: New Leicester supermarket, 16,500 sq feet: largest in Europe 1960: Acquired 212 stores in North of England. 1964: End of Resale Price Maintenance – the Manufacturers Price Cartel. 1964-65: Acquired another 144 stores. 1964-1977: Trading Stamps as a price discount. 1967: First Superstore 90,000 sq feet: Westbury, Wiltshire 1968: Acquired Victor Value store chain. TimeLine: the move upmarket:  TimeLine: the move upmarket 1970’s As customers became more affluent Tesco moved up-market: Closure of many old high street stores Investment in car-friendly out-of-town stores Wider range of goods Wider aisles Better lighting Emphasis on quality, customer-service and a customer-friendly environment. In 1978 market share increased from 7% to 12%. 1980’s continued expansion 1985: 100th new superstore 1985: Healthy eating initiative with own-label products 1987: £500 build programme: 29 stores By 1991 biggest petrol retailer in the UK TimeLine: breaking new ground:  TimeLine: breaking new ground 1992: Tesco Metro – new city centre stores 1992: Tesco Express – forecourt retailing 1995: Largest retailer in UK 1995: First customer loyalty card 1997: Tesco Extra – 87,000 sq ft – extensive range non-food. Tesco.com created Tesco Direct – catalogue retailing 1997: Tesco Personal Finance – a joint venture with Royal Bank of Scotland Tesco Visa card Instant travel insurance Personal Loans 2000 Opened in Taiwan 2000 Introduces Customer Champions 2001 Launches tesco.com in USA 2001 First in Organics market 2001 Now 3 own-label brands: Value, Tesco, Finest: over 45% of customers buy Finest. >50 sales now own-lable. 2002 Opened in Malaysia 2002 Launch of Cherokee own-lable clothing 2002 Acquires HIT chain in Poland: now lead the market. 2003 Acquires 870 T&S stores: starts conversion of 450 to Tesco Express 2003 Acquires 72 stores in Tokyo Slide32:  Retailing Services Tesco.com is the largest grocery e-tailer in the world and achieved a profit of £12m in 2003. Tesco personal finance, established in 1997, now has over 3.4 million customer accounts and 15 products and services. It achieved profits of £96m in 2003 (Tesco share £48m). Non-food Half of UK new space opened this year has been for non-food and the result has been to grow market share to 5%. The Core Business:  The UK business remains our core market. Our focused strategy of providing exceptional value and choice for customers ensures that we continue to grow market share. We have four store types: Extra our hypermarket destination shopping offer; Superstores; Metro our town centre and city centre stores; Express our convenience offer. The Core Business Non-Food:  Now have a 5% market share. Goal is to be as strong in non-food as in food. Our non-food offer encompasses: electrical, threatening Dixons, pharmacy, threatening Boots stationary, threatening W.H.Smith home entertainment, threatening HMV clothing, threatening Matalan, Primark homeshop, threatening Ikea cookshop, threatening TK Maxx travel agency, threatening Thomas Cook and, in our largest stores, white goods Comet, Currys Non-Food Services:  As customers' shopping habits change, we change and respond by providing new products and services. Our e-commerce business has grown rapidly. We are the worlds largest grocery e-tailer and operate our system in the international markets. Both tesco.com and Tesco Personal Finance demonstrate our ability to extend the Tesco brand. We have also moved into Telecoms, launching a fixed line phone service and a directory enquiry service. Services International:  Tesco has successfully opened up new growth markets in Central Europe and Asia. The proportion of total Group space outside of the UK was 47% at the half year 2003/2004. Now operating in Hungary, Poland, Czech Republic, Slovak Republic, Thailand, South Korea, Taiwan, Malaysia and the Republic of Ireland. In 2003/2004 acquired the C Two-Network, a price leading retailer in Japan. International Slide39:  Estimated own-label penetration, by selected ambient packaged grocery markets, by value, 1997-2002 ‘Mintel’ Own-label Food & Drink - UK – March 2003 Customer Relationship Management Realisation that I may have changed my shopping to the new Morrisons store in Consett:  Customer Relationship Management Realisation that I may have changed my shopping to the new Morrisons store in Consett

Add a comment

Related presentations

Related pages

Competitive Advantage Definition | Investopedia

BREAKING DOWN 'Competitive Advantage' Competitive advantages provide an edge over rivals and an ... The more sustainable the competitive advantage, ...
Read more

Competitive Advantage - quickmba.com

Competitive Advantage. When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its ...
Read more

Let’s consider Porter’s Two Types of Competitive Advantage

Title: Let’s consider Porter’s Two Types of Competitive Advantage Author: Marvin Last modified by: Marvin Created Date: 7/13/2009 1:34:47 AM Document ...
Read more

Strategy and Competitive Advantage

Strategy and Competitive Advantage Competing in the marketplace is like war. You have injuries and casualties, and the best strategy wins. John Collins
Read more

Types of Competitive Advantage: Cost, Product, Niche ...

Types of Competitive Advantage: Cost, Product, ... 2 - Competitive Advantage Competitive Advantage: The Importance of Strategic Marketing 9:27
Read more

dict.cc | competitive | Wörterbuch Englisch-Deutsch

Übersetzung für competitive im Englisch-Deutsch ... 2 Wörter: Substantive: competitive ability: ... A 2010-08-17: (we) gained a competitive advantage
Read more

Competitive Advantage | Business | tutor2u

The main challenge for business strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a ...
Read more

Oh! Pioneers! Session 2: Competitive Advantage/

15.835: Entrepreneurial Marketing Session 2: Competitive Advantage/ The First Mover Advantage Pioneer Advantage/ The First Mover Advantage • Pioneering ...
Read more

Competitive advantage - Wikipedia, the free encyclopedia

Competitive advantage is a business concept describing attributes that allow an organization to outperform its competitors. These attributes may include ...
Read more


Chapter 2 in Gerald I . Susmaa, editor, Integrating Designand Manufacturing for Competitive Advantage, Oxford University Press, 1992. 2 COMPETITIVE ...
Read more