Write an essay of explaining what the main strategy development tools are and how they are used in your chosen business Organization.
Gaining a competitive advantage against a company’s rivals involves the creation and sustaining of superior performance by the company. Woolworths, an Australian based company operates in the retail industry. The retail industry is highly competitive and this forces Woolworths to formulate competitive strategies by differentiating its operations from the competitors in order to gain a competitive edge (Madsen and Walker, 2015, p. 88). Woolworths faces stiff competition from Wal-Mart, ALDI, TESCO, and Macro Wholefoods Limited companies. The main goal of Woolworths is becoming competitive in the retail industry by giving customer high-quality retail services and products. To achieve this dream, the company applies strategy development tools such as the SWOT analysis, PROFIT, PESTEL, Porter's five forces in designing competitive advantage strategies against its main rivals as mentioned above. The aim of this essay is explaining SWOT, PESTEL, and Five Forces as the main strategy development tools used by Woolworths in gaining a competitive edge against its competitors.
Porter’s Five Forces
The Porter five forces strategy analytical tool assesses the current position of the whole sector in which a company operates (Porter, 2011, p. 66). The analysis of Woolworth's operations in Australian retail industry is done through the application of the five forces as follows:
Bargaining power of buyers
There are numerous companies that operate in the retail industry in Australia. As a result, the bargaining power of customers is significantly higher as far as the purchasing of basic commodities from the supermarkets by customers is concerned (Porter, 2011, p. 68). Since buyers have broad options of companies to buy from, Woolworths offer after sales services such as discounts, transport, and e-business more effectively hence winning more buyers. As a result, the competitive edge is gained.
Bargaining power of suppliers
The Australian retail industry is highly concentrated with big companies and among them is Woolworths. Other players also dominate the market such as Wal-Mart hence divides the market share for Woolworth’s retail products (Porter, 2011, p. 69). Woolworths, therefore, should advance its supplies roles to boost its performance in the market hence obtain a wider market share that leads to a competitive advantage.
Threats of new entrants
In the Australian retail industry, the threat of new players is low since the big companies have dominated the market (Porter, 2011, p. 70). Woolworths being a big player in the market needs to acquire more businesses and market its products in the country to compete out the already established rival firms such as Wesfarmers.
Rivalry among existing companies
Woolworths is rivaled by Wesfarmers and Wal-Mart in the Australian market. Woolworth competes with these companies for the market share (West, Ford, and Ibrahim, 2015, p. 40). The management should properly assess the strategies used by these rivals to design counter-strategies of improving market share.
Threat of substitute
Woolworths sells basic commodities for human survival. The market has no other alternative consumable product hence must buy from Woolworths. Therefore, the threat of substitute is lower and consumers have to utilize the retail commodities for there is no other choice.
PESTEL is another crucial tool that Woolworths can use in assessing its external industry environment that impacts on its performance.
The political factors in Australia significantly affect Woolworth’s performance in the retail industry adversely. For example, the Federal government launched a competition policy to deny Woolworths and other big players the right to eliminating competition (Ashton and Morton, 2005, p. 30). These political conditions make Woolworths lose completion edge to small retailers hence should be addressed.
Market recessions in Australia have adversely affected Woolworths performance and profitability in the retail industry. There have been declines in economic activities in Australian markets and this affects Woolworths (Babu, 2012, p. 55). Also, currency fluctuations and exchange rates disparities affect Woolworths international businesses.
The norms, beliefs, religions, customs, and behavior of consumers in Australian market also affect Woolworths performance in the retail industry. For example, some cultures prohibit consumption of certain foods sold by Woolworths (Yüksel, 2012, p. 52). The company is highly socially responsible to the society and gives back to the society.
Woolworths operates in a technologically competitive industry in which investing in technology is necessitated. Other big players such as Wal-Mart use e-commerce in selling its products. Woolworths applies the green refrigeration technology in storing perishable products (Babu, 2012, p. 56). Further, the company is adopting the e-business model to increase its sales hence enhance its competitiveness in the industry.
Environmental factors also impact on Woolworths performance and competitiveness in the industry. Petrol and winemaking businesses around Woolworths location poses adverse threats to the company in that the environment is at risk of unclean air to breath and water to drink. As a result, the healthy conditions of workers are endangered (Ghemawat, 2016, p. 732).
Legal factors affect Woolworths in form of carbon tax that was implemented by Australia’s Federal government and affected the retail sector in particular. Regulation of retail operations by Australian Competition and Consumer Commission adversely affects Woolworths performance in the industry (Wagner and Hollenbeck, 2014, p. 90).
Woolworths applies SWOT (strengths, weaknesses, opportunities, and threats) analysis tool in understanding both internal and external demands in the market hence gaining a competitive advantage.
i. Strong retail brand name and efficient operations
ii. Popular and successful brands such as Chad Valley
iii. Use of modern retail trade model
iv. A wide variety of retail products
i. Global presence is negligible as compared to that of rivals
ii. Failure to sustain a competitive edge of its brand in the market
iii. Late entry to e-commerce hence stiff competition
iv. Lower experience in online marketing
i. Promote its retail brands through adverts, sales promotions, and sponsorship
ii. Wide unexploited retail market in the world
iii. Availability of strategic acquisitions and mergers in the market
iv. Numerous franchise models in emerging economies
i. Stiff competition both locally and internationally
ii. Recessions in the economy that hinder its growth strategies
iii. Increase in material costs from both food to non-food products
iv. Falling profit margins due to rising of material costs
As highlighted in the introduction, the main competitors of Woolworths are TESCO, Wal-Mart, and ALDI. A proper understanding of the internal and external market forces would help the management of Woolworths design effective competitive advantage strategies (Arli et al., 2013, p. 16). These strategies include the exploitation of the potential markets in the world market to boost performance, the formation of mergers and acquisitions with other companies to diversify its brand recognition and enhance its financial position (Gunjal, 2017, p. 40). Further, Woolworths marketing team needs to employ franchise models in its acquisition policies so as to thrive in the market. Also, the company should enhance creativity and innovation by getting up to date with the new business technologies such as online marketing and e-commerce in order to gain a competitive advantage over its key rivals (Gunjal, 2017, p. 20). Finally, Woolworths needs to invest in building its brand to enhance that its value is maintained in the market hence maintaining its competitive edge.
A critical strategic analysis of Woolworths has been undertaken with an aim of assessing the critical strategies that the company uses to gain a competitive edge against its big rivals. The performance of Woolworths is affected by both internal and external market factors ranging from SWOT factors, PESTEL Factors, and Porter Five Forces. From the analysis, Woolworths is strongly committed to establishing a brand acceptable in the entire Australian and international markets. Woolworths is faced with stiff competition from other big players in the retail industry and this threatens its performance and sustainability in the market. Also, Woolworths operates in adverse economic, political, and legal market environment that affects its performance. While the company cannot take control over the adverse PESTEL factors, the company can come up with strategies for advancing an efficient SWOT model in which all opportunities are exploited and all weaknesses addressed appropriately. Therefore, Woolworths should frame a consistent competitive strategy in which all adverse factors are properly addressed in a manner that will establish a fair price policy to the consumers.
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