Marketing Strategy for W H Smith - Case Study Example

Marketing Strategy for W H Smith 1. Introduction W H Smith is a mature company in the United Kingdom market for stationery products. Since the company operates in various product segments, it needs to adopt different strategies in each segment. The company has been witnessing loss of market share in many of the product segments not only because of competition but also because it has not adapted to the changing conditions of the marketplace. In this paper, I will offer a marketing strategy for the company, develop a brand for it and discuss the issues that arise while developing the strategy. 2. Marketing strategy A company and plan a strategy and implement it successfully only if the entire hierarchy is committed to it (Thompson, Stickler and Gambler, 2007). While the top managers design the strategy, other employees put it to action. In order to transform its marketing strategy completely, WHS needs to re-focus its business environment and evolve its value chain completely. The first step in transforming the marketing strategy, it is essential that the existing strategy is reviewed thoroughly in the context of changing business and market environment. According to Porter’s theory of distinctive competencies, which has been developed further by other researchers (cited in Barney and Clark, 2007), a firm derives its competitive advantage from its managerial capabilities, leadership qualities and other specific managerial attributes, rather than the natural resources that it owns, that makes it distinctive from others. Wernerfelt (1984) developed Porter’s (1980) product market competitive advantage theory to a resource-based view in which the resources are in terms of marketing capabilities. Since WHS operates in a business space that is highly competitive and with little scope for product differentiation, the company’s competitive advantage can be gained through an aggressive marketing strategy that addresses the issues that are raised by the changing environment. The case that is presented below develops the strategy on the basis of cost competitiveness and higher level of customer interface on newer and different marketing platforms. WHS has been facing declining sales and market share, despite its strong historical reputation as a high street stationary retailer primarily because it has not changed its focus and not adapted to newer marketing channels like the online space or reduced its procurement costs through global purchases. The high costs of its high street stores and the limited footfall from the younger customers have meant that the company has been stuck in the declining phase of the product life cycle. According to the Boston Consulting Group (BCG) matrix, WHS is in the stage of “problem child” when it is facing diminishing market share and reducing market growth. It is losing market share to supermarkets and specialized retailers. It has also not been able to grow its traditional operations in segments like book and newspaper distribution because of competition from new entrants like the Internet. 2.1. Cost competitiveness WHS operates in a highly competitive market with no cost competitiveness. Instead, its heritage status implies that it has a cost disadvantage with respect to other retailers like local independents, specialized retailers and supermarkets. WHS sells stationery only through retail stores that are located in premium areas and near railway stations. The marketplace has changed over the last decade and a larger share is occupied by players who can reduce costs and pass on the cost advantage to customers. Online sales and supermarkets are the most cost-effective retail sales platforms. Competitors like supermarkets procure globally and offer discounts to attract customer. WHS is, on the other hand, a defensive player, and has not explored new avenues like online sales at all. WHS’ logistics and supply chain has been weak of which the competitors have taken an advantage. WHS is weak in managing inventory and store shelf as it does not have a strong supply chain. While supermarkets like Asda have an extremely efficient supply chain and store management which is highly mechanized and based on information technology, which enables it to track changes in customer demand of particular products, WHS has continued with the traditional methods of store management that is not receptive to fast changes in customer demand. Inefficiencies in inventory management also results in high costs since unnecessary inventory pile-ups imply high costs. 2.2. Focus on specific markets WHS operates in a number of segments and is competitive in only a few like books and newspaper distribution. In some areas like entertainment products, it is a complete failure as it has not been able to change its customer interface and has not been able to attract young customers, who are the main clients in this segment. WHS’ main customer segment is the older group who are the loyal buyers. However, the growing customer base is from the younger group whom the company has not been able to target. Since book and newspaper distribution has been a strong point for WHS, it is advisable to increase focus on this segment. 2.3. Store Differentiation WHS offers a full range of stationery products, from education, adult books, entertainment products, personal stationery, newspaper and magazines and travel products. Independents and specialized retailers usually have fewer product ranges while supermarkets have even more product range. Hence, WHS’ product range is wide but undifferentiated. As a company, WHS is differentiated from its competitors as a heritage company even though its products are not differentiated. It can build on its strength to differentiate its stores. For example, it can develop themed brandstores which have the tagline of the heritage element of WHS. Since WHS has an existing reputation as a heritage retailer and also as a travel products retailer, it can develop a chain of themed brandstores. Also because all of WHS’ stores cover large areas in prime locations, it can also include products like art, curio, collectors’ items like camera, old books and photos and so on. The themes can be set up in different segments of the store. The physical immediacy of themed brandstores will increase the footfall of the well-heeled customers who form the bulk of the company’s customers. This will enable the company to differentiate itself from the superstores and independent retailers based on its strength. The physical immediacy of the themed brandstores combine the cultural concepts of a marketer with the branding focus which academic research has found to be successful in the retail business (Borghini et al, 2009). It can also differentiate its products by own labeling. This is particularly possible in the case of personal and computer stationery and travel products. WHS can also achieve store differentiation through an equilibrium depth of product assortment in each product category. This is especially important because WHS’ products are relatively undifferentiated. Research has found that there is a positive relationship between product assortment and sales for undifferentiated products and negative relationship between the two variables for differentiated products (Hamilton and Richard, 2009). 2.4. Developing customer relationship The starting point of developing customer relationship for any company is to define the customer segment which is given by the following. Segment group Segment 1 Segment 2 Segment 3 Segment 4 Segment 5 Psychographic (Lifestyle or Motive) Fiction Education Travel Entertainment Personal Stationery Age Middle to older Children Middle Youth All Social Class Upper All Upper Middle Middle As seen from the above table, main characteristics of the customer segment in which the company has competitive advantage – book and newspaper distribution, personal stationery and travel product retailing – WHS’ customer segments comprise the older population in the higher income groups. Hence, the company needs to develop a strategy to improve customer relationship targeted specially for this group. In order to target the customer base, marketing mix (4 Ps) need to be analyzed with the context of its specific product segments. Product - WHS has a wide product range which is undifferentiated, competing with players ranging from supermarkets to independent stores in each domain. It has major market share in books and newspaper distribution and is the weakest in entertainment products. It has a niche in travel products because of the proximity of its stores to railway stations. Both these product segments can be differentiated in the context of its customer base. Since the customers are from high-income groups, it is possible to provide high-value products at high margins. Price – WHS’ products are not competitive in comparison to the other players. It needs to streamline its procurement and logistics so that it can improve its price offerings. Promotion – WHS has a relatively high advertisement budget hence it is competitive on this count. However, it needs to explore new promotion media like internet banner ads, social media and so on. It can also create more promotional packages like specific travel tours packages, newspaper and magazine subscription packages, book discounts etc. Place – WHS stores are located at premium locations which have customer focus since its differentiation is based on the high income groups. It should also explore other selling avenues like the online B2C platform. It also does not have access to out-of-town locations like supermarkets but, being high street, it has a customer base of the higher social groups. However, with increase in suburban living, WHS is thereby missing the opportunity of targeting a large section of high income elderly population as well. 3. Developing a brand According to the SWOT analysis of WHS, its key strength is its heritage reputation and its key weakness is in price competitiveness, and lack of product differentiation and customer orientation. While supermarkets are most competitive in terms of price, independents and online retailers have greater customer focus. The competitors have an integrated branding focus and can increase product sales through the advertisement of other products that they also sell. In this respect, WHS is at a disadvantage since it is limited to a segment of product that has not been a high growth one but has also been vulnerable to economic downtrend. Hence, it needs to undertake a branding exercise that is focused towards its strengths. With the advent of newer categories of competition, like online and supermarkets, retailers are realizing the importance of brand recognition. It is assumed that a brand can be differentiated by the superiority of a particular characteristic of the brand (de Charnatony and Riley, 1998). Online promotion WHS needs to get into the online sales business as a large part of the stationery product segments, like books, magazines, entertainment and travel products, are now sold through this platform. Besides Business 2 Consumers (B2C) sales strategy, it also needs to do an aggressive online promotion activity through internet banner ads, cross-promotion of products through link shares with other websites and so on. Newspaper and television advertisement WHS already spends a large part of its advertising budget on newspaper and television advertisements but it needs to get more aggressive. To begin with, it needs to engage high quality branding designers who can introduce newer concepts of advertisements. Sponsorships WHS can explore the opportunities for sponsorships for particular products in the travel segment. Management Issues for Strategy Implementation The main management issue that is surrounded over the marketing and branding strategy developed is the current competitive scenario and the business environment. In the context of the global financial crisis that the businesses are facing over the last two years, retailers of consumer products have become all the more vulnerable to diminished consumer spending. Especially for products that are undifferentiated, high cost retailers have an added disadvantage. In travel products more than any other segment, revenues are highly related to consumer spending. Online sales and supermarkets have become major competitors in the retail industry. For a company like WHS which has no cost advantage, it is extremely difficult to develop a high price range on the basis of brand recognition and reputation alone. Some of the product categories like entertainment products – CDs and DVDs – which have high demand from the young customer base, are highly dependent on product range and store turnaround. Besides, value for money is the primary differentiating factor in this segment. If WHS has to focus its marketing and branding strategy on only differentiated stores catering to high income older population, it is focusing on a narrow demographic segment. However, UK is an ageing country and there is a high proportion of older population. But, in the context of the financial crisis, this customer base is facing diminishing income. On the other hand, the larger customer base whom WHS is missing out on is the growing segment. The main management issue for WHS’ marketing strategy is costs. The company is already facing cash problems, with diminishing sales. If in addition to this, it has to differentiate its stores through theme branding and own labeling, which seems to be the most plausible avenues for WHS, it would involve high expenditure. Hence, it is imperative that it disposes some of the loss-making product segments, like entertainment products, and focus on a few select segments and make the supply chain more efficient. Works Cited Barney, J B and D N Clark, Resource-based theory: Creating and Sustaining Competitive Advantage, Oxford University Press, 2007 Wernerfelt, B, “A Resource-Based View of the Firm”, Strategic Management Journal, Vo5 Issue 2, 1984 Porter, M.F., Competitive Strategy, The Free Press, New York, 1980 De Charnatony, Leslie and Francesca Dallolmo Riley, Modelling the Components of Brand, European Journal of Marketing, Vol 32 Issue 11/12 1998 Borghini, Stefania et al, Why are Themed Brandstores so Powerful? Retail Brand Ideology at American Girl Place, Journal of Retailing, September 2009 Hamilton, Stephen F and Timothy J Richards, Product Differentiation, Store Differentiation and Assortment Depth, Management Science, August 2009 Read More