Tuesday, March 9, 2010
ShopRite's Business Strategy
ShopRite uses the low cost business strategy to help them maximize their profit. They go about this low cost strategy in many ways. They have all the name brands that they sell in the store at a more reasonable price, but then they also sell their own ShopRite brand of many popular brands. Then they also reduce their spending cost by searching for the best products at the lowest prices. They have recently implemented a self check out lane for customers who don’t want to wait and those longs lines. This also reduces the cost for them because then they wont have to hire more employees to work the register. These are just some of the ways ShopRite sticks to their low cost strategy and how they go about making the most profit with their business.
5 Forces, Switching Costs & Entry Barriers
The Five forces model was designed by Michael Porter and it has been used by businesses to help people understand the relative attractiveness of an industry and the industry's competitive pressures as it relates to 1. Buyer power, 2. Supplier power, 3. Threat of substitute products or services, 4. Threat of new entrants and 5. Rivalry among existing competitors
Buyer power refers to how high or low the customers buying choices are. In ShopRite the buyer power is relatively high as customers can easily go elsewhere to purchase the same products that ShopRite offers with the exception of the generic ShopRite branded products. ShopRite however creates a competetive advantage by making it more attractive for customers to buy from them rather than their competitors; they do this by selling at a cheaper price and offering coupons to current and potential customers. ShopRite tries to reduce buyer power by selling high quality products cheaper than what customers would find elsewhere so customers would purchase their merchandise.
Supplier power is the opposite of buyer power; it refers to how high or low the buyer’s choices of whom to purchase from is. ShopRite has a low supplier power as it has a variety of suppliers whom it can purchase from and it maintains this low supplier power by having its suppliers compete via bidding for their business. One such example is Coke Cola and Pepsi constantly compete for contracts with ShopRite.
Threat of substitute products or services is high or low depending on how many alternatives their are to a product. ShopRite has a low threat of substitute products as their main threat is online grocery shopping in which the products are delivered to the customers households. ShopRite decreases this threat by expanding into that market by offering online grocery shopping as well.
Threats of new entrants refers to how easy it is for new competitors to enter a market. ShopRite’s threats is somewhat high as the grocer’s market is relatevely easy to enter. An example of this is Wal-Mart that is now starting to sale not only electronics but groceries. As we talked in class everyone knows that Wal-Mart is very powerful and this could hurt Shoprite in the future. To decrease this ShopRite should implement entry barriers that could prevent other new establishments in it’s current market.
Rivalry among existing competitors refers to how much competition is faced in a market. ShopRite has high rivarly as they have alot of competition from other well established companies such as Pathmark, Foodtown, or Stop and Shop as well as little neighborhood stores. All of these companies are in the food industry and are rivalry for ShopRite. To reduce this ShopRite tries to distinguish itself from its competition by emphasizing low prices and good customer service.
Switching costs are costs that make customers reluctant to switch to another product or service supplier. ShopRite uses switching costs by providing the lowest price as possible on most of its products so that customers would be reluctant to switch to a higher costing competitor. They also issue double coupons and every week promotions on their products that customers would not receive elsewhere. They also have special programs for their ‘loyal customers’ such as ShopRite cards which further reduces the price for customers as well as accumulating points to be redeemed for prizes. These along with providing good customer service are how ShopRite uses switching costs.
ShopRite uses entry barriers which help make it hard for companies to enter the market. Shoprite uses this in their technological advantage by purchasing cheaper than its competitors so they could sell at a low cost. This takes alot of time, research and money to establish and build relationship with their suppliers. A firm attempting to enter this market would need to have a substantial amount of money, technology, as well as connections in order to efficiently compete in this industry.
Major Business Initiatives
Major business initiatives includes better Customer Relations management by being able to connect with customers more frequently and relevantly. ShopRite wants to improve communication with customers by doing marketing research of products which customers purchase. Doing this will allow ShopRite to target specific markets with specific items. To facilitate this ShopRite uses SAS solutions software for retail turn data about customers, merchandise and operations. SAS software is a vital part of ShopRite’s IT as it allows ShopRite to make more informed decisions and gain competitive advantage over its competitors in terms of targeting potential markets for products.
Also as a bottom-line strategy company besides customer satisfaction ShopRite aim’s towards cost reduction. They do this by adopting a wait and see approach by buying proven technological devices that is guaranteed to give them a return on their investment. They also use communications technology to locate the cheapest supplier to reduce product cost which will in turn lead to a low product price for consumers.
IT Organization & Philosophical Approach
Information Technology (IT) can most commonly be described as “the study, design, development, implementation, support or management of computer based information systems....” (http://en.wikipedia.org/wiki/Information_technology.) In IT there are three basic organizations which are; The top-down silo, Matrix and Fully integrated. Shoprite has a structure similar to that of the top-down pattern. Their IT department is separated from the other departments of the organization. Thus other functions must go thorough the IT department for approval on new projects regarding anything technological.
Companies could basically adopt one of two philosophical approaches to IT. A company can chose to be centralized also known as ‘wait and see’ adopters or rather decentralized also known as early adopters. Wakefern/Shoprite utilizes a centralized philosophy. The company buys proven technology which would give them a significant return on their investment. This is done because Wakefern/Shoprite uses a low cost strategy and does not budget heavily for technology as it would severely impact profits. Also heavily investing in new unproven technologies would not result in their acquisition of a substantially bigger share of their targeted market.
Kinds of Ecommerce Used
E-commerce or electronic commerce refers to commerce enhanced by the use of information technology especially the internet. This simply means buying, selling and exchanging of goods and services on the internet.
The most notable kind of e-commerce ShopRite is involved in is via their store website which enables customers to shop for products over the internet which would then be delivered or available for in store pick up. ShopRite also uses the internet for advertising and marketing by posting ads and offering coupons respectfully which entices persons to purchase from them. One new way of advertising is by the use of social networking sites such as twitter (www.twitter.com/ShopriteStores). The internet also facilities distributing these coupons to consumers through email as well. Also with technological advancements e-commerce is also done by texting offers to cellphones and pda’s. One such example is in Hillsborough, N.J., consumer goods giant Uniliver the owner of Knorr, Lipton, Wishbone, Hellman’s, Breyers, SlimFast and many other products is running a trial at a ShopRite store that involves cashiers scanning the consumer’s cellphone screen, which will display a digital coupon.
In turn when Shoprite needs its supplies their primary supplier Wakfern Food Corporation, which is also their parent company; the ordering of their supplies is done via e-commerce by an semiautomated system that places orders by using the internet to facilitate communication with their supplier and themselves.
Internet Business Models
There are nine major e-commerce business models; of these nine ShopRite is primarily involved in two. The first is Business to Business (B2B) which is when a business sells to other businesses; which is the most used business model. A typical example of this is ShopRite selling wholesale to restaurants and bakeries. These business would purchase food products from ShopRite which they would then use to make their products.
The other model which is used by ShopRite is the Business to Consumer (B2C) which is when a business sells to a consumer which is usually an individual. Examples of this includes persons visiting the physical store and purchasing items or persons who shop by using the internet (e-commerce) by visiting the store’s website which was mentioned in 3A.
Marketing Mix is the set of marketing tools that an organization uses to to pursue its marketing objectives in reaching and attracting potential customers. For B2C ShopRite markets in a variety of ways; Registering on search engines so that potential customers using search engines such as google would have a higher success rate of being directed to ShopRite when words such as supermarket, grocery and Shop are searched. Apart from this they advertise online via affiliate programs in which they and another website most notably Wakefern; their parent company which directs persons from the Wakefern site to ShopRite’s site. ShopRite also uses more traditional methods of advertising such as television ads, newspaper ads and a magazine type mail that is distributed to areas surrounding ShopRite locations.
For B2B ShopRite participates in E-Marketplaces to find suppliers and to be found by other businesses who wish to be their customers. One such E-marketplace is www.Supplierlist.com . Apart from contacting suppliers relationships need to be made and maintained so that there is a level of trust to ensure continued business deals, to do this there needs to be a level of IT integration between buyer and supplier. ShopRite has a connection to its suppliers so that ordering and updating inventory is easier and more efficient.
For B2C ShopRite uses many forms of payment systems Financial cybermediary is an internet based company that eases payment from one person or organization to another over the Internet. Most notable is ‘paypal’ which is set up to aid customers using the ShopRite website. Other systems used include Credit cards and smart cards which is similar to a credit card that contains an embedded chip on which digital information such as how much money you have can be stored and updated. ShopRite recently intoduced ExpressPay from American Express, a contactless payment option featuring a secure computer chip powered by radio frequency technology which customers at the counter would use instead of cash or credit cards.
For B2B ShopRite has Electronic Data Interchange (EDI) which is the direct computer-to-computer transfer of transaction information in standard format such as invoices. Vendors willing to do business must have EDI capability and should contact the Wakefern Food Corporation EDI department to establish the connection; firms that do not have EDI capability are encourage to implement the software otherwise ShopRite would not conduct business with them. After the EDI the Financial EDI is used to facilitate payment for purchases made.
Business Wire January 11th 2010
Wakefern Food Corp. Teams with SAS for Unique Marketing Solutions.
In 2009 the Wakefern Food Corporation developed a business initiative to connect with customers more frequently and relevantly according to Business Wire. To do this Wakefern and its consultants decided on SAS Marketing Automation Software. SAS is referred to in the article as “the leader in business analytics software.” SAS uses innovative solutions and helps customers improve performance and deliver value by making better decisions faster.
SAS Marketing Automation software was essential for Wakefern’s marketing needs because the system required by the company needed to automated, intuitive, secure and maintainable. This was so because managers wanted a system that they did not need to monitor but instead would produce opportunities automatically in which their effectiveness could easily be measured.
Although Wakefern adopts a low cost strategy the implementation of the SAS software refers to its customer relations management and supply chain management as the system is used to improve communication with customers, the communication within the Corporation and vendors (Supply Chain); these are targeted to help increase customer retention, acquisition and market share.
Full Article HERE