Strategy for Waterstones - Strategic Direction of Market Penetration - Case Study Example

Strategy for Waterstones: Course Title Student Name University Year Choice of Strategic Position (or Direction) In order to make a choice of strategic position for Waterstones, it is important to start by using the Generic strategies framework to identify the current strategy used by Waterstones. According to Manktelow (2013), Porter’s Generic strategies include; Cost Leadership strategy, Differentiation strategy, Cost Focus strategy, and Differentiation Focus strategy. Figure 1 below shows Porter’s generic strategies model. A company is said to be using Cost Leadership strategy if it attempts to be the lowest-cost producer in the industry. Such a company is usually keen on ensuring cost reduction throughout its value chain but it doesn’t imply that its product prices will be low. In an industry with essentially undifferentiated products, a company with the lowest costs is able to make highest profits. However, the company using the cost leadership strategy may decide to charge average prices hence plow back the extra profits into business, (Lynch, 2003: 649). A company is said to be using differentiation strategy if the company provides better product performance and better service levels among other product differences in the market that enable the company to charge a premium price for its products. However, although there are many benefits associated with differentiation strategy, such companies have to incur extra costs to be able to implement high advertising budgets needed to promote the differentiated brands. The firm may not be sure if the use of premium pricing would help recover the extra costs of differentiation. Again, if a firm succeeds to implement differentiation strategy, competitors may be attracted to enter the market segment and replicate the differentiated product (Lynch, 2003:). The third Generic strategy is the Focus strategy which is actually a moderator of the first two above (cost leadership strategy & differentiation strategy). A company which uses Focus strategy seeks to gain competitive advantage only in its target market. Therefore, a company may either aim to gain a cost advantage in its target segment thus use the cost focus strategy; or may aim to gain differentiation advantage in its target segment thus use differentiation focus strategy, (Manktelow, 2013). There are some companies that may make use of more than one generic strategy. In other words, such a company is stuck in the middle according to Porter (1980: 34-44). As such Porter (1980: 34-44) argues that such a company lacks competitive advantage hence ends up with poor financial results. Figure 1: Porter’s Generic strategies model. Source: http://www.mindtools.com/pages/article/newSTR_82.htm Waterstones therefore uses differentiation strategy as the source of competitive advantage which is characterized by premium pricing of the company products. Although the current strategy is working well for Waterstones in the bookselling industry, there is need for Waterstones to change the strategy because of the changing nature of competition in the bookselling industry (Patel, 2013). I suggest therefore, that Waterstones adopts the market penetration strategy in the Ansoff’s matrix framework as the new source of competitive advantage. The new strategic positioning will help Waterstones to progress from its current positioning and rebrand as traditional, reputable and reliable Waterstones that focuses on more personalized customer service and stronger relationships with consumers, (Wheat & Richardson, 2014). Ansoff’s Matrix was first developed by Michal Porter in 1985 and usually makes an assessment of strategies available to a firm faced with either an existing or new market/product. The strategies in this framework include; Market Penetration strategy, Product Development strategy, Market Development strategy and Diversification strategy, (Riley, 2012). Figure.2 below illustrates Ansoff’s Matrix. Figure.2: Ansoff’s Matrix. Source: http://www.tutor2u.net/business/strategy/ansoff_matrix.htm The market penetration strategy direction is the best choice for Waterstones of the four strategies within Ansoff’s growth matrix for various reasons: First, Waterstones strategy objectives currently focuses on selling existing products into the existing markets which is consistent with operational purpose of the market penetration strategy, (Riley, 2012). Second, Waterstones is not essentially focused on selling its existing products into new markets hence cannot choose to use the market development strategy. Furthermore, compared with market penetration, market development strategy is perceived to be relatively more risky due to targeting of new market segments (Riley, 2012). Third, Waterstones cannot choose to use product development strategy since the company is not introducing new products into the existing market. Again, using product development strategy requires product differentiation for a company to remain competitive, (Riley, 2012). But Waterstones cannot rely on product differentiation which it has been using for a long time, and which now is not delivering the desired results because the rivals too are able to copy and introduce the differentiated brands, (Patel, 2013). Finally, Waterstones cannot choose to use diversification strategy since it is not introducing new products into new markets, (Riley, 2012). Therefore Waterstones should go with market penetration strategy which allows for; increasing the market share of current products, securing dominance of growth markets, increasing usage by existing customers for instance through introduction of loyalty schemes, and even restructuring of a mature market through deliberate measures to force out competitors. The Recommended Strategy One of the issues highlighted by Waterstones current CEO James Daunt as reported in the Guardian of Friday 4th October 2013 was that Waterstones seemed to have lost sight of the old fashioned bookselling art in which finding out what the customer wants used to be the key focus. Instead, Daunt observed that Waterstones had established rigid centralized directives where every shop stocks the same books, together with what Daunt termed “the awful planograms”- photographs of a display table that must be faithfully set up in every store. James Daunt therefore believed that such arrangements only makes sense in for some businesses such as when selling shampoo in boots, but does not make sense in bookshops, especially when one wants to create interesting bookshops, (Rankin, 2013). It means therefore that stores must be redesigned to reflect a pleasurable book reading image. In the changing industry circumstances, strategy objectives of Waterstones focus among other things: to drive more traffic to Waterstones; to cut down the 75% share of online book market held by their main rival Amazon; and become the lead retailer both in the high street and online categories of the book industry. In order to meet these objectives, the new strategy positioning recommended for Waterstones (Market Penetration Strategy) must be designed to be able to re-ignite and inspire a culture of reading where people engage in books both in the high street and online through Waterstones. This will satisfy the much desired objective by Waterstones; to be successful within both the high street and online categories, (Patel, 2013). In the new positioning to use Market Penetration strategy, Waterstones will rebrand as a multi-channels brand offering services on three platforms including; mobile, in-store and online. This will also give Waterstones a slight advantage against Amazon that has no in-store presence currently. The main aim is for Waterstones to provide a more personalized service and personal connection as opposed to the current generic communication strategies used. It means that the personal connection elements will feature not simply in post-purchase, but across the entire value chain. None of Waterstones rivals currently provides personalized service within a multi-channel framework. Furthermore, this positioning will be essentially unique for Waterstones within her price point since none of her rivals currently interacts within the local community like Waterstones will be interacting through community brands using the new strategy. For instance, it will be beneficial for Waterstones to position as a ‘community Bookstore’ which will resonate well with both the older and younger consumers (Wheat & Richardson, 2014). The new positioning for Waterstones will bring with it elements of community nature including; traditional, reliability, and ethical attributes. These will attract the older consumers. There will also be elements of innovation and brands spontaneity that will tend to attract the younger consumers. On the other hand, this positioning will be popular with children’s departments and consumer base comprising of mums who would like to engage in building communities. Thus Waterstones will target to have a new primary consumer group that will comprise of Holiday Readers, Avid Readers, collectors, Magazine Readers and Academic Readers. The secondary consumer segment for Waterstones will comprise of mums who may not be Avid Readers but who would want to purchase for their children, (Wheat & Richardson, 2014). With the new positioning, Waterstones will need to implement a marketing strategy that will reflect both the service personalization element and the community focused approach. This must be designed carefully as to maintain the current wide appeal to Waterstones product range so that some consumer groups are not left out. Therefore, the most appropriate marketing strategy to use must incorporate a ‘Pull’ method that would help attract consumer interests across all channels. Other than aiming to induce the new consumer to buy from the brand, the strategy will also aim to establish loyal sustainable relationship between the company and the consumers, (Patel, 2013). Waterstones will continue to use the current premium pricing and ensure it is aligned with the other strategies within the new positioning. The premium pricing is warranted by the fact that there will be additional services being offered by Waterstones while providing personal recommendations as a community rand. In order to appeal to her consumer base, Waterstones may require using some promotional offers to her customers who may not actually sustain the premium price points. Alternatively, Waterstones can achieve this through increased promotional activity at the Waterstones marketplace that would allow for relatively less expensive second hand offers to her customers, (Wheat & Richardson, 2014). Waterstones will have to ensure provision of outstanding customer service levels especially through enhanced in-store experience in order to leverage their competitive advantage against major rivals while at the same time helping the company reinforce Waterstones’ community caring position in the market. This must also include the new store layout and features that are tailored to reflect consumer preferences prioritization and the new community positioning. Waterstones needs to adopt centralized automated stock management system replacing the current store-by-store system. This will deliver more efficiency and significantly reduce waste (Wheat & Richardson, 2014). Justification for the Choice of Strategy The need for a new strategy for Waterstones is justifiable because the bookselling industry is changing. Available research indicates that the high street book stores business has been hit by the economic downturn which has been felt across the entire UK’s high street book market. At the same time, a substantially rising online sales trend has been observed in the industry. This has been characterized by the increasing e-books popularity for which Amazon; Waterstones’ main rival has captured the lion share of 75% (Campbell, 2013). The fact that Waterstones has been using the high price point premium pricing within the differentiation strategy has made the company to look more expensive than her competitor in the industry, yet they continue using the same strategies. Research has therefore established opportunities that Waterstones should take advantage off in order to enhance its competitiveness in future. The opportunities available include; the provision of personalized service, building interactive customer relationships and building communities. This is why Market Penetration strategy is recommended for Waterstones to position the company in the high street, online and mobile categories in a manner more unique and difficult for rivals to copy, (Wheat & Richardson, 2014). The strategy direction chosen for Waterstones is justified given the fast changing nature of retailing industry in the UK which is characterized by changing consumer habits. The 2013 retail predictions for UK showed that technology and convenience will be the key winning drivers in the retail industry. Online technology was projected to grow especially considering the increasing M-commerce that encourages shopping and paying making payments using mobile handsets. The boom of smartphones especially the tablets in the UK market serve to promote online shopping for those who were not familiar with computers. It means that website optimization is indispensable for Waterstones and any other retail firm in the UK economy. This research indicated that older shoppers (55+) will be more technologically savvy and would account for about 10million online shoppers by 2016 which would be an estimated 31.9% growth compared to 2011 figures (Verdict Research & SAS, 2012). The new strategy direction for Waterstones is also justified on the grounds that the book retailing market is characterized by globalization, uncertainty and intense competition, (Yang, 2009:90). It is thus important for Waterstones to design and tailor her marketing strategies towards ensuring that these factors are accommodated in a way that cushions the company from losses that would otherwise drive the company out of the industry. In order to remain competitive and relevant, Waterstones must also pursue this recommended strategy direction that allows for necessary adjustments in the face of the impacts of global change and PESTEL factors, (Nwagbara, 2011). The strategy direction recommended for Waterstones is justified due to fact that innovation is one of her major distinctive capability. Furthermore, Waterstones also has architecture as one of her strong distinctive capability that such that the company has ability to adopt new technology fast, easily and efficiently, (Dahlen et al 2010, 95). Waterstones managerial capabilities have also worked to enhance distribution network through decentralization while ensuring a balance between price and efficiency of online retail and that of Waterstones’ traditional in-store service, (Nwagbara, 2011). References Campbell L, 2013. Amazon has 79% of e-book market share in UK. Available at http://www.thebookseller.com/news/amazon-has-79-e-book-market-uk.html Dahlen M, Lange F, & Smith T, 2010. Marketing Communications: A Brand Narrative Approach, London: John Wiley & Sons.p.95 Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall :Financial Times. 865pgs Manktelow J, (2013). Porter's Generic Strategies - Choosing Your Route to Competitive Advantage. Available at http://www.mindtools.com/pages/article/newSTR_82.htm Nwagbara U. (2011). Waterstones and the Changing Bookselling Environment in the UK: the Journey so far and Prospects. Economic Sciences Series. Vol. LXIII No. 3/2011. P o r t e r , M. E. (1979) How competitive forces shape strategy. Harvard Business Review, March/April, 12-19. P o r t e r , M. E. (1980). Competitive strategy.techniques for analyzing industries and competitors New York: Free Press. Patel A, (2013). Strategic Management- Waterstones, Available at http://prezi.com/nv7t0vyozftn/strategic-management/ Rankin J, (2013). Waterstones can live with Amazon and stem losses, says James Daunt. The Guardian Friday 4 October 2013. Available at http://www.theguardian.com/books/2013/oct/04/waterstones-kindle-amazon-losses. Riley Jim, (2012). Ansoff’s Matrix. Available at http://www.tutor2u.net/business/strategy/ansoff_matrix.htm Verdict Research & SAS (2012). How the UK Will Shop in 2013. Available at http://www.sas.com/offices/europe/uk/downloads/retail/retail-predictions2013.pdf. Accessed 10/03/2014. Yang, L. (2009). The Effect of the Internet in the Book Retail Market. Asian Social Science, 5(2), P90 Wheat R & Richardson Y, (2014). Waterstones – Saving the Largest British High Street Bookstore. Available at http://issuu.com/rachelwheat/docs/uploadable_waterstones_stage_2 Read More