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Strategy entails two things: making a decision about where you want your business to go, and deciding on how to get there. An organization's comparative position within an industry is determined by its selection of competitive advantage, that is, cost leadership versus differentiation, and its option of competitive scope. Competitive scope separates organizations aiming for extensive industry segments and organizations focusing on a narrow segment. Generic strategies are important because they typify strategic positions at the simplest and highest level. Michael Porter claims that in order to achieve competitive advantage, an organization is required to decide about the type and scope of its competitive advantage (Porter, 1996).
According to Michael Porter, an organization hoping to obtain a sustainable competitive advantage should follow either one of three generic strategies namely cost leadership, differentiation or niche strategies. Cost Leadership involves the business striving to be the lowest cost producer within their industry. Sourcing and labor costs are some of the elements of production of the product that the organization uses to drive cost down. Since the cost leader generally aims at an extensive market, adequate sales can cover costs. Wal mart is among these low cost producers. Sometimes however, some organizations aim to reduce costs but do not extend these cost savings to their customers. They do so aiming for higher returns simply because their brand can command a premium rate (Porter, 1985).
The next strategy, differentiation, is about being unique. Every organization strives to be different. A competitive advantage which allows a company and its products ranges to be unique is vital for their success. An organization utilizing a differentiation strategy focuses its efforts on particular segments and charge for the added differentiated value. Original ideas which enable differentiation might be secured. But, patents cover a specific period of time and organizations constantly face the risk that their idea that gives them the competitive advantage will be copied in one form or another. In niche strategies, the organization directs all its efforts on one specific segment and becomes popular for providing products or services within that segment. The organization creates a competitive advantage for this niche market. They then succeed by either being a low cost producer or differentiator within that particular segment. An organization can also utilize two of these strategies at the same time. This is by offering particular segments a differentiated product or service or a low cost product or service. The main thing is that the product or service is focused on a particular segment (Porter, 1985).
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Wal Mart is an example of these organizations. They have employed both strategies, that is, cost leadership and differentiation. In the cost leadership strategy, Wal-Mart commits to provide quality products with the lowest price. Their prices are up to fifteen percent lower than other stores. Wal-Mart's store managers are left to manipulate the prices of their stores and have authority to lower prices based on the local competition. Their stores are built in the border of big cities and communities with a warehouse look that gives them the competition advantages in low leasing and maintenance costs. Finally, they offer superior quality at low prices for customers.
Wal-mart's differentiation strategy is based on their excellent inventory system. This system focuses mainly on finishing less profitable products and lowering the range of products in a given category. It has a long term impact on sales for some consumer goods suppliers if the products of a given supplier are targeted for elimination which results in greater sales volume. This system restructures the movement of goods from the manufacturer to the store shelf. That higher and quick turnover ends up in increased turns and therefore fewer inventories. This is part of what enables them to offer high quality at better price for clients (Levitt, 1975 ).
Market segmentation is the splitting up of a market into various groups of consumers with specifically comparable needs in terms of product or service requirements. Else, market segmentation is the partitioning of a large market into particular and dissimilar groups or segments. Each of these segments has certain characteristics and needs and exhibits similar responses to marketing actions. The aim of market segmentation is to control limited resources. Put in another way, it is to make sure that the rudiments of the marketing mix, price, distribution, products and promotion, are created to meet specific requirements of various consumer groups. It is impossible to manufacture all possible goods for all the people, all of the time, since companies have finite resources. The best that can be hoped for is to provide chosen contributions for certain groups of people, most of the time. This process gives organizations a chance to deal with specific customers' requirements, in the most competent and successful method (Mullins, Walker, & Boyd, 2010).
The market segmentation theory is connected to product differentiation. If an organization aims at various market segments, they might adapt different variations of their products to satisfy those segments. Equally, adapting various versions of a product may appeal to various market segments. For example, Wal-mart has come up with a plan to adapt its various stores to specific locations around the world like china, India and Mexico. They have also unveiled a racially-oriented segmentation. As part of the segmentation, they diversified into food and grocery, private labels and an online store. Wal-Mart online is an e-commerce website and has started selling online Music and Movies.