Food Retailing - Assignment Example

Title: Food Retailing Dated: November 10, 2008. Part A (a) The profits with and without loyalty cards in a pay off matrix, and b) The combined profits of Ghetto and Tidl for each of the possible situations. Ghetto’s profit Tidl’s profit Combined profit Profit in the present position without the use of loyalty cards £100m £100m £ 200m Introduction of loyalty cards by one competitor (suppose by Ghetto) £120m £60m £180m Introduction of loyalty cards by both the competitors. £80m £80m £160m Total £300m £240m £540m c.Explain, using the concept of a ‘dominant strategy’, which outcome is most likely The strategy as per dominant strategy’s principals as adopted by Ghetto during the retailing business proved to be more profitable as he had a total profit of £300m in the entire business game during the period under review. Tidl had secured only £240m profit due to his slightly rigid approach while adopting new business tool that is loyalty card for his business. (d) Why are supermarkets faced with a dilemma when introducing loyalty cards? Who benefits from this dilemma? Supermarkets are facing with a dilemma of uniqueness and commonness after a short period of the introduction of loyalty cards. During the initial period of the post introduction of the card the customers show some interest and keenness to abide by their relationship with the administration of the supermarkets. However, with the passage of time the level of debts on the part of customer’s increases and the size of monthly installments also observe an upward trend. Therefore, the supermarkets take extra care while introducing such new innovations for expanding their businesses including that of loyalty cards. The supermarkets are also facing the dilemma of observing the status quo for adapting to the new technologies and the organizations who are adopting a flexible approach towards the adoption of new technology emerge as victorious. (e) If, after a period when both competitors have been operating loyalty card schemes, Ghetto suggests that they discontinue their schemes simultaneously, would it be doing anything illegal? The introduction and discontinuation of a new approach towards the promotion of a business is a time consuming phenomenon and involving a set of primary and secondary stake holders. The option of discontinuation of the loyalty card by both the competitors without taking into confidence to the customers would be an act of cheating and against the business ethics. Part B Michael E Porter of Harvard business school in 1979 has provided a Porter’s 5 forces analysis framework for the industry analysis and business strategy formulation for the businesses to observe their working performance, viability, profitability and future outlook. The framework uses the concepts in the businesses as developed by the industrial organization economics on the basis of five fundamental forces that determines the financial and future health of the business with respect to all other competitors and potential threats including both internal and external threats. These five forces include: a. Bargaining power of suppliers b. Bargaining power of customers c. Threats of new entrants d. Threats of substitute products e. Competitive rivalry within the industry. All these five forces interact with each other and on the basis of their synergetic impact the economic health and competitiveness of the firm is established in a specific competitive environment within the industry. These five forces establish the competitive intensity and attractiveness of the firm and the organization within the market. Attractiveness of the industry is related with the profitability and growth of the industry and it promotes the economic strength of the industry and is considered as a positive set of factors. In such type of situation all the major stake holders are on the positive side and interact with each other for the promotion and growth of the business. The situation is also described as a win-win situation in which each major player gets benefit form the execution of the business with its profitability. On the other hand if any of these five forces as described in the above paragraph overplays viz a viz the other four forces the balance of the competitiveness tilts towards a set of forces neglecting the remaining forces therefore, resulting in the form of unattractiveness of the industry. A very unattractive industry has the direction moving towards pure competition. The trend gradually leads toward the declining trend and finally elimination of a particular and primary player from the scene. Porter has referred to these forces as operating in the micro environment rather than that of macro environment. Study of these forces is essential for the business entrepreneurship to tackle the issue at the initial stages as at that stage redressing of the phenomenon is comparatively easy. The industry at this stage can be put back on the road to the progress of its sustainability and continuity. A strategy in the handling of any of these five forces involves administrative machinery of the industry to reexamine the position for addressing the problem. The use of five forces as a positive contributory factors is an essential requirement for the top management of the organizations specifically those industries like airline business which have limited market access and the existence of the competitors in the market. The airline industry becomes a profitable organization with the careful execution and handling of Porter’s five forces with a delicate balance. The airline industry introduces specific business models as to promote their businesses in the restricted and controlled model with the operation of all five forces. The economical use of five forces in business like setup put the profit of the organization in the above average zone of the industry. Porter’s five forces are used by the consultants to design plans and strategies for the organizations to put into practice for the execution of the plan with an objective in mind to enhance the level of profits with the aim to utilize minimum inputs with maximum profitability. Porter’s five forces operate in horizontal as well as vertical form in competitive environment. The position can be explained with the help of the following table: . For illustrating the application of Porter’s five forces framework a report has been selected as published in 2008. The report is relating to the retailing in China and the same report has been attached with the assignment in the form of (Annex –A). A complete analysis of the report is as under: Nature of the industry as reported in the report is retailing business in China and China and the West. The retailing business mainly relies on the purchase of the products from the producers, stocking and displaying the products and selling the products to the potential customers. Porter’s five forces in the report are as Serial # Name of the Force Example 1 Bargaining power of suppliers China is a progressing country of the world and is importing a variety of inputs to run the businesses, these force plays an important role in the overall economic activity of the country. European countries and the west are the major players which functions as the agents to work as bargaining power of the suppliers. 2 Bargaining power of customers The importers like America, Canada, Mexico, and Germany are the example. 3 Threat of substitute products New destinies for the importers like Korea, Japan and Thailand are the examples 4 Threat of established rivals Threats from the rivals like Japan and Korea 5 Threat of new entrant Emergence of new markets for the importers like India and Singapore. All these forces are interacting in a coordinated and control mechanism to boost the economy of China. The existence of all these forces has proved to be a positive contributory and with each passing day the economy is flourishing with new heights. The existence of the force that is bargaining power of suppliers works as to provide a competitive environment for the suppliers that is the exporters to China like India, Japan, Thailand, USA and France get their share of the business on fair practices bases and all these stake holders get benefit out of the execution of the business between the importer that is in this category of force China and the exporters as mentioned in the preceding lines. Similarly, the existence of all other four forces that is bargaining power of customers, threat of substitute products, threat of established rivals and threat of new entrant play their due role in the retailing business at the macro level in the country. It is expected that the use of Porter’s 5 forces framework will provide a constructive arrangement for analysis of any type of business and industry at any part of the world. Future generations will get benefit fro the existence of the Porter’s 5 forces mechanism for results oriented business activities. The utilization of the framework will provide a competitive environment for all the stakeholders to put their best skills for achieving maximum benefit from the business without any negative impact on the interests of the other player of the whole plan. The Porter’s model will help in the growth of the industry and business with an overall strategy that all the stakeholders are in a win-win position (Porter,1985). Reference: Porter, M.E. (1985) "Competitive Advantage", The Free Press, New York, 1985. ANNEX-A: Retailing in China - May 2008 Look beyond the wall of China’s retail scene with Mintel’s new reports, Retailing in China and China and the West – A retail comparison. Over the past five years Mintel has built up a well established research team in Shanghai. Richard Perks, Director of Retail Research at Mintel has worked closely with this team, so that we can now offer you reports that give you a fresh perspective of what is really happening in the major Chinese retail sectors. ...more » China - vast, vibrant and misunderstood? China is the world’s biggest country by population - four times the size of the US - and within 10 years it will be the world's second largest economy. It is also combines political stability with an exceptionally high rate of growth. And the opportunities for retailers are equally large, thanks to a rapidly growing affluent middle class, eager to buy into a Western lifestyle. Key themes of the reports: These reports put China into context. They highlight the leading players in the major retail sectors They show where retailing in China differs from retailing in the West and where it is similar Exclusive consumer research commissioned by Mintel also allows the reports to: Highlight what motivates Chinese consumers Highlight how the Chinese differ from Western consumers Look beyond the wall of China’s retail scene with Mintel’s new reports, Retailing in China and China and the West – A retail comparison. Over the past five years Mintel has built up a well established research team in Shanghai. Richard Perks, Director of Retail Research at Mintel has worked closely with this team, so that we can now offer you reports that give you a fresh perspective of what is really happening in the major Chinese retail sectors. ...more » Read More