According to the case, Netto has been generally successful since it moved into the UK (David, 2001), although, the degree of competition in retailing industry in the UK is extremely intensive. thus is worthwhile to study this case. N this paper, firstly, the key elements of the marketing strategy will be identified based on the marketing mix of Netto. Secondly, according to theory of Porter’s competitive strategy and the British business environment, the dangers of mainly adopting pricing marketing strategy will be analyzed. Finally, through the SWOT analysis, the recommendation, which might used to help Netto retain its competitive advantage, will be provided.
Since Netto entered into the UK market, it mainly focuses on one generic strategy, cost leadership. This enables Netto to position itself as a grocery discounter with lowest price in the UK’s food retailing industry and a market-niche player to avoid competing with large firms by targeting the price-sensitive customers. Its marketing strategy can be characterized by analyzing the marketing mix engaged by Netto as the follows.
For product strategy, Netto provides limited range, fast-selling, non-brand and essential products., which allow Netto to buy goods at low price in order to achieve its cost-leadership. Furthermore, all the products in UK store are bought locally, the strategy of the company for this is to adopt the British culture and taste
The strategy for Netto to choose its store is that the location should be the area with a high concentration of population who are price-sensitive. This enables Netto to delivery its discounter concept and attracts the customers effectively. Moreover, the format of the stores is no frills and surrounded by relatively low prices of property. This also enables the company to achieve low fix cost in terms of realizing its cost leadership strategy.
Netto sets its price as the lowest price in the market, since its market segmentation is the people who are price-sensitive. This allows the company to satisfy its target market accurately. This also ensures its discount philosophy to be delivered successfully.
The promotion strategy engaged by Netto is to mainly spend on local press and radio stations which is cheaper than the cost spend on TV and it is more effective to reach its target customers. Again, it helps company to achieve its cost leadership strategy. In addition, in order to increase store loyalty, it uses intensive in-store promotion.
Workforce flexibility is a main source for Netto to lower its cost. Employees within the store are trained in every aspect of the store’s operation. This approach helps the company increase its efficiency and productivity. In addition, employee participation is one of the company’s policies. This distinct organizational culture increases effort, which subsequently improves efficiency and productivity, it reduces the cost of monitoring employees and it leads to increased commitment.
The simple organization’s structure with just two management levels is flexible to adapt the changing environment as well as lower the overhead. Moreover, the stock management is engaging the just-in-time system. This improves the company’s efficiency and reduces the inventory cost effectively.
The company’s strategy for physical evidence is to provide good access, convenient location and free car parks, this ensure the company can meet the customers’ needs. Moreover, the company allocates some of its stores next to Iceland where both retailers benefit from complementing each other’s product ranges. This also enables both stores can share the facilities in order to reduce their operations cost.
According to the factors identified above, Netto can improve its efficiency and productivity through its marketing mix activities in order to lower its cost. Therefore, it can provide the lowest price of the goods in the food retailing industry. This is the company’s main marketing strategy, cost leadership. Moreover, during the time Netto moved into the UK marketing, the UK economy was in recession, as a result, the number of price-sensitive customers increased. In addition, the main multiples ignored this sector, thus it provided the opportunity for Netto to implement its cost leadership strategy properly.
The dangers of adopting mainly pricing marketing strategy
So far, Netto has been successful by implementing this pricing strategy. However, there are number of dangers associated with the exclusive pursuit of single generic strategy.
First of all, the dangers caused by environmental factors should be taken into account. In the UK the distinctive culture is that low prices are not necessarily equated with value and are associated with poor quality (David, 2001). This cultural factor restrains Netto to gain more market share even lose its existing customers, if it continues to strongly pursue its low price strategy. Moreover, the economic factor can also pose danger to Netto. Most Netto’s customers are price-sensitive. If the British economy improves, this would reduce the number of price-sensitive customers and subsequently cause the danger of losing market share due to its low price strategy is no longer to be attractive.
Secondly, the danger of causing inflexibility and narrowing the organization’s vision might occur, when Netto focus strongly on only pricing strategy. Danny Miller (1992) stated that pursuing only a single generic strategy might leave serious gaps or weakness in product offerings, ignore important customer needs. For example, the low price strategy for Netto leads it to pay too much attention on cost control and ignore the customer service. This result in customer services is one of its main weaknesses. In addition, this pure generic strategy leads to Netto’s inflexibility to adopt the business-changing environment such as economy recovery and the changing of customer buying habit. This causes Netto to be especially vulnerable to such environmental changes.
Thirdly, the threat of imitation may arise due to only focusing on pricing strategy, since competitors may be able to imitate this strategy more easily than mixed strategies. In this case, if the main multiples imitate Netto’s low price strategy to compete with Netto, the situation for Netto is disastrous, since the multiples have greater economy of scale and more powerful bargain power to gain cheaper product. In some degree this has happened. For example, the market leader, Tesco, has launched a new cut -price private label called Tesco Value and another competitor Asda is also resting a discount format in terms of gaining more marketing share from the discount market.
Finally, the low profit is caused by low price strategy. This leads to a danger of being weak ability to innovation, improving customer service and unable to adopt the changing environment as well as struggling with the profit.
The recommendation for Netto to retain its competitive advantage based on SWOT analysis
low overheads costs
The lowest products prices in the market
cost Efficiency and simple organizational structure
The organizational culture of employee participation
Localized products and staffs
low cost of non-brand supply
Weak financial position compared with the multiples
Strongly rely on price strategy
The profit significant lower than that of other retailers
Poor customer service
Poor product quality image
Limited range of product lines
Economy recession causing price-sensitive customers.
The trend of customer preference of shopping (larger stores with greater products, good access, convenient location and free car parks)
The British culture of shopping habits
The high degree competition in the grocery retailing industry
The marketing share growing slowly within the discount grocery retailers.
The intensive competition raises a crucial question to Netto which is how to retain its competitive advantage in order to maintain its existing customer base meanwhile to attract more customer segmentation such as the customer who is less price sensitive. According to the SWOT analysis, Netto may engage in the following strategies.
Cheapest price as the basic discount concept of Netto, one of Netto’s strengths, brings Netto to penetrate into UK market and the business growth. However, purely engaging this generic strategy is vulnerable due to competitor’s imitation and the business-changing environment. As a result, it may lose the existing customers. Therefore, the company should pursue mixed strategies. Based on its low price strategy, it should improve the image of the company. For example, it can increase the range of product lines. This provides more alternatives for customers to purchase in order to improve Netto’s image that it not only provides essential products but also other products. This ensures that company can get the customer loyalty due to it adapts the current customers shopping preference.
This not only satisfies the existing customers but also attracts the customers of other segments. Furthermore, in terms of improving the company’s image it also needs to improve the quality of its products. This requires the company need to lunch its own-brand product instead of its previous non-brand one. This backward integration strategy can enable the company to guarantee its good quality products and as well as lowering the cost of input. In addition, enhancing the relationship between the employees and the customers is a crucial factor to satisfy customers and subsequently improve customer service.
Thus, it is important for company to improve its employees’ attitude such as patience and enthusiasm. With the condition that low price, greater range, good quality and good customer service, the customer will feels more confident and satisfactory with the firm. Thereafter, they would exert the function of word of mouth. As a result, this would change the people’s attitude that low price equates to bad quality, and introduce the Netto’s brand as a reliable name. This not only enhances Netto’s current market share but also attract the customers from other segment, who are less price-sensitive.
Another alternative for Netto is alliance with other grocery retailers. Since the weak financial position and slim profit makes Netto unable to compete with the main supermarket chains in the UK, when they engages some retaliatory actions against Netto. Through the alliance, the companies can share the costs, risks, and benefits associated with developing new business opportunities. It can also create value from transferring competencies or sharing resources between businesses in order to realize economy of scale, which enhance the cost efficiency. Meanwhile, the company also enhances its bargain power to gain lower cost and high quality of supply. Under this circumstance, the company will be able to provide not only low price but also good quality products. Therefore, with the proper alliance Netto will be able to compete with the main supermarket chains and subsequently enhance its market position even becomes the main player in this market.
Netto penetrated into the UK through strongly engaging in low price strategy. Although, it has generally been successful, there are some potential dangers due to its focus on pricing strategy. The dangers may be losing existing market share caused by the environmental factors, the inflexibility to adapt the changing environment, the threat of imitation and struggling with profit. Therefore, based on the SWOT analyses, if Netto implements the strategies such as increasing the range of the product lines, improve the quality of the products and customer service at the same time which is based on cost efficiency and proper alliance with other grocery retailers, it will solve the problems and be successful in the future.
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