Woolworths – During Tough Times - case study
1 - Woolworths – During Tough Times - case study introduction. By dropping prices and increasing product range, is Woolworths diluting its value proposition?
Woolworths is not diluting its value proposition by dropping prices as they still intend to deliver good quality products, superior packaging and excellent customer relations. They still intend to deliver on that promise and ensure that the consumer prefers its products and services above their competitors in the long run, thus maintaining the key to a sustainable competitive advantage (Hough, 2011).
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In the case study the divisional director for foods, Mr Julian Novack, mentions that because they carry a large portion of own-brand products, they are able to exert greater control over the prices by optimising the production process and reduce the input costs. Woolworths consulted with its suppliers to find ways to reduce pricing on their products and reviewed its entire supply chain, reducing unnecessary packaging, improving their logistics and also keeping an eye on price of commodities such as wheat. By making effective changes in their value chain Woolworths is able to increase the value delivered to their customers (Hough, 2011).
2. When the economic conditions change for the better, should Woolworths withdraw some of the added product?
Woolworths should not withdraws the added product ranges and extensions as they are able to assist in increasing revenue for the retailer. The divisional director for foods mentions in the case study that Woolworths wants to move in to a relevant and competitive supermarket business which means that they must carry the full range of product required by a consumer when doing their shopping. To have a narrow selection range which will require the consumer to stop off elsewhere to complete their shopping, thus decreasing convenience, they are losing out on the full consumer cash value and sending customers to the competition.
By having made a choice of entering the “black diamond” market, Woolworths has also engaged with a new consumer base which has its own culture and values as well as preferences. Some of these preferences will go down to the type of products purchased at retail level in the food sector. The graph titled Exhibit 3 shows the declining performance Woolworths experienced starting towards the end of 2007 to 2009 which could be due to their higher price range and product selection thus losing market share to their competitors. As mentioned above, by increasing their product range or extending their lines they are able to be more competitive and keep their value proposition relevant.
3. Overall, do you think Woolworths is changing its strategy?
Woolworths overarching strategy is to differentiate from its competitors based on higher quality and product reliability. With that said a successful strategy has to also be aligned with the external environment and its internal resources to ensure that a competitive advantage is maintained and must do this on an on-going basis as variables are ever changing.
By identifying the opportunity and moving in to the Black Diamond market Woolworths is shifting its strategy to cater for a new niche market with its own sets of wants and needs, however it will still be serving this under the overarching strategy mentioned above.
When Woolworths scanned the environment they saw a downturn in the economy and their performance dropping. Although the Black Diamond market accounted for a considerable size of the food sales (Shevel, 2009), it was one of the hardest hit markets by the tough economic times. Seeing that they we losing market share to competitors such as Shoprite Checkers and Pick ‘n Pay, Woolworths looked to cut prices and add products to their offering or extending existing lines so that they had more to offer the consumer and attract back the lost market share.
By optimising their value chain Woolworths was able to cut down on costs with out affecting the quality promised by their value proposition. They were also able to negotiate with their suppliers by pushing more volumes through the production pipeline so that the better prices can be passed on to the
consumer, at the same level of quality (Shevel, 2009).
By efficiently and effectively executing their strategy Woolworths was able to bring about price cuts without affecting the quality of their product and maintaining their competitive advantage. References
Hough, Johan. (2011). Crafting and Executing Strategy: McGraw hill. Shevel, Adele. (2009). Woolies cuts prices to attract new market. Retrieved 16/09, 2013, from http://www.bizcommunity.com/Article/196/182/32400.html