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Question:

As a strategy consultant you have been invited by the board of directors of a company based, within a well defined industry sector, to advise them on the possibility of changing the strategy of their company.  In particular they are keen to redesign their strategy along the lines of the much publicized blue ocean strategy and also consider the possibility of developing a global strategy.   

Required:

Task 1

Carry out a full analysis of the industry or sector in which the company is currently operating. Drawing on relevant models and using appropriate company data, critically appraise its current strategy.

Task 2

Critically discuss the ways in which the company could shift its strategy from "red ocean" to "blue ocean".

Task 3

Identify and discuss the key implementation challenges.

Answer:
Task 1: Retail Industry analysis
PESTLE

The Dollar Tree Company is in the retail industry and has concentrated on a low pricing strategy to attract customers to purchase the company’s products. The company has mainly concentrated on selling their products within the USA borders, but recently they launched new stores in Canada. The retail industry in the USA is very competitive with stores like Wal-Mart, Target and E-Mart dominating the retail sector (Farfan, 2017). The competitive nature of the industry has made Dollar Tree focus on new strategies that can enable it to increase its profitability levels while building its capacity.

The recent change in power in the USA affected the stability of the retail sector for a while as there was a lot of uncertainty how the new government will handle economic issues. The Trump government came into power with one major goal to rejuvenate the economy of the country and create more jobs for the American people. The government has immense power in controlling the retail sector through the policies that they institute. The government does regulate the products that are sold to the end consumers through the various regulatory agencies. The regulatory agencies ensure that the products that are sold in the retail stores are fit for human consumption and in the case of electronic products that they are safe for use (Farfan, 2017).

The Dollar Tree Company does sell second hand products and has been exposed to many challenges when it comes to meeting the set regulatory standards. In 2015, the company was forced to enter into an agreement with the OSHA after being cited for over 200 health and safety violations which arose after 13 spontaneous inspections were conducted on the stores. The violations mainly arose from lack of access to exit routes, poor organization of merchandise, faulty electrical equipment, and inaccessible emergency routes among others. Dollar Tree has been charged 825, 000 dollars as fine for the offense (Vehling, 2017). The retail store also has been given a set of policies and regulations that it has to meet within a stipulated time frame.

The inflation rate in the USA has reached levels of 2.4%, this has affected the employment levels in the nation where most companies have been forced to lay off their employees and others to shut down. The aspect has reduced the disposable income in the hands of the consumers which has tremendously reduced their shopping activities. In 2015, the retail stores recorded a 2% higher on average, which is a total of $5.3 trillion when compared to 2014. During periods of low economic performance people prefer to hold their finances instead of investing; this aspect has affected the shares of the retail industry when compared to other sectors of the economy. An example is in 2009, during a recession where the industry made low sales of $4 trillion (Farfan, 2017).

Consumer shopping preferences have altered immensely with time. Today, consumers prefer online shopping to going to the retail store to do their daily shopping. The aspect has affected the retail stores that are limited to brick and mortar as they end up recording low sales especially during the winter (Ho, 2014). Additionally, the consumers who do their shopping in the retail stores are attracted to stores that offer a variety of products. The aspect allows them to exercise their freedom of choice when it comes to buying the products they want. All retail stores in different parts of the world stock different items to appeal to the preferences of their customers.

On the technological arena, the retail stores have shifted to incorporate e-commerce stores to complement their business. The retail stores have set up a website where the consumers can click and view the various products that are offered by the store (Burney & Hesterly, 2013). They then pay through either PayPal, wire transfers among other means and then the products are delivered to them. The stores have also introduced digital systems that enable customers to pay for their various transactions with ease. The automation in various retail stores like Wal-Mart is done to improve customer experience and ensure that they come back to their stores often.

The legal aspect enforces fair competition in the retail sector. The government has instituted legal implications that prevent the black market trading, illegal trafficking, unfair competition, and hoarding products among other illegal practices (Patten and Zhao, 2014 p.133). Consumer protection, labour, and environmental protection laws have been put in place to regulate the industry. The laws have changed often to ensure that the retail stores are able to operate in a competitive environment that ensures that everyone does benefit in the end.

Consumers have become more environmentally conscious and this does limit the products that the retail stores have to stock in their stores. Additionally, the government regulatory agencies strictly monitor the products that are sold in the retail stores. The products have to be certified to be safe for human consumption and use for them to be sold in the retail stores. Therefore, retail stores are tasked with the responsibility of ensuring that their suppliers meet the set standards for them to sell their products in their stores (Patten and Zhao, 2014 p.133).

FIVE FORCES

The five forces also play a significant role in analysing the performance of the retail sector.

Competitive Rivalry

The first force is the competition in the industry, the competition in the retail sector is quite stiff for Dollar Tree coming from both the small retailers and large retailers in the USA industry. The company faces stiff competition from Dollar General, Wal-Mart, and Target Stores

Dollar Tree and competitors’ market share

Dollar General

2%

Dollar Tree

3%

Wal-Mart

73%

E-Mart

10%

Target

12%

 
Consumers Bargaining Power

The consumer bargaining power as an individual is quite low in the retail sector when compared to other sectors of the economy. Individual buyers often end up purchasing the prices of the set products despite their dislike to the set prices but it increases when consumer unit. The consumer bargaining power is also lowered by the consumers’ high diversity when it comes to product preference. Despite this fact, all is not lost to the consumers, they still have control through their through the consumer organization. Consumer organizations consist of a large group of customers who form a stronger force that does keep the prices at retail stores reasonable (Jurevicius, 2017).

Consumers bargaining power of suppliers

The large number of suppliers has a major impact on the retail stores. The large number of suppliers all need to sell their products in the limited open spaces offered by the retailers. The aspect does reduce their bargaining power since they are many in number than the demand required by the retail stores. Additionally, the immense competition among the suppliers gives the retailers an upper hand (Quickmba.com, 2017).

Threat of new substitutes

There is the highest number of substitutes for the products offered in the different retail stores an aspect that does make the retailers to focus on competing on the aspect of quality or price. Dollar Tree opted to compete on the aspect of low price targeting the low income earners while Wal-Mart competes on quality (DollarTree, 2017). The threat of substitution is one of the aspects that have increased the diversity of products in the retail stores.

Threat of new entrants

The number of sole retailers has transformed over the years to chain stores. The aspect does decrease the intensity of new entrants that was formerly witnessed in the retail sector. Though there are independent stores sprouting up, the chain stores give the retailers a competitive advantage against the independent retailers (Farfan, 2017).

Strategic Mapping

Dollar Tree Inc. mission statement clearly outlines the concepts of operation that, focus on the retail store offering products at one dollar price and are geared towards giving their customers exemplary services. The main objective has also been tackled which deals with ensuring profitability of the organization. The value proposition offered by the company is to provide their customers with products or services that will satisfy their needs (DollarTree, 2017). The company has managed to achieve this strategy in the USA but more needs to be done in terms of expansion.

The financial strategy employed by the company focus on acquisition of new stores that deal with the similar type of business. Dollar Tree has acquired Family dollar an aspect that has strengthened their market shares in the industry. The company needs to consolidate its profit margins by inviting investors to invest in their business.

Dollar Tree Inc. understands the concept of customer is king, which is in line with their mission statement. The concept has made the store to offer their employees training on how to deliver satisfactory services to their employees. Addition, there is a customer suggestion box at the entrance that allows the customers to give their feedback on the service that they are getting from the enterprise (DollarTree, 2017).

The strategies discussed above, have to be consolidated and executed internally. The internal perspective of an organisation determines the direction that the management decision will take (CGMA, 2017). In Dollar Tree Inc. employees are treated as family an aspect that has facilitated the effective strategy implementation  (DollarTree, 2017). The last aspect deals with learning and growth strategies that the company does through benchmarking their performance with leading retail stores in the industry  (CGMA, 2017).

Task 2: Shift from Red Ocean to Blue Ocean strategy.

The red ocean strategy refers to the presence of stiff competition in the industry where the retailers end up making similar profits based on their size of operations. The stiff completion allows retailers to cover their overhead costs while making dismal profits that enhance their operations. Dollar Tree Inc. despite its mission of operating at a dollar they are facing stiff pressures from their competitors who offer quality products and also from high inflation that has been affecting the USA market.

The increase in the prices of commodities makes it difficult for them to continue offering the customers most of their products at one dollar price point. The company needs to diversify its operations to move from the shark infested region of the clear waters. Dollar Tree needs to focus more on aspects of the industry that are being taken for granted and use them to gain a competitive advantage against their competitors.

In the Red Ocean strategy the companies in the industry focus on their present customer base. The advertising that the retail stores are doing is aimed at maintaining their present customer base and attracts customers with the same preference. Dollar Tree Inc. is a one dollar pricing store and hence its target market is the low income earners, they therefore focus their concentration on providing products that this market may need. On the other hand, in the Blue Ocean strategy the companies need to focus on the non-customers. Dollar Tree Inc. needs to focus on a new customer base that has not been purchased from the store. Their focus should shift to the middle income earners and the higher level income earners. The new customer base will drive the company to reinvent their marketing strategies to meet their needs  (CorporateStrategyInstitute, 2017).

In the red ocean strategy the companies are competing within the same market. In other words, the companies are limited to the customer base that they have been interacting with in the same environment. The situation often ends up with stiff competition for retail stores to acquire their competitors’ customers. Contrariwise, the blue ocean strategy creates new horizons for the retail stores where they operate in uncontested markets. The creation of new markets revolves around the company creating an uncontested brand that is low cost and dares to take risks (Becker, 2010).

Current Dollar Tree Inc. is working towards beating their competitors through acquiring their stores via mergers and acquisitions. The company has acquired the Family store and plans on continuing its expansion strategies by buying out the competition. The strategy is a good strategy, but it is costly and is mainly centred on coming with new ways to defeat the competitors. On the other hand, blue ocean strategy provides the company with an opportunity to make their competition irrelevant by coming up with high value strategies that are geared towards giving them a competitive advantage. More concentration is given to invention and creation of new positions in strategies rather than competing.

The red ocean strategy focuses on making a trade-off between value and cost. According to Porter’s competitive strategy the companies in any sector have to choose one alternative to pursue that is either cost or value. Based on this model, Dollar Tree Inc. chooses the cost aspect of the value and has been providing customers with affordable items. The good news is that there is a chance for the retail store to break even through the blue ocean strategy. The retail store can still provide low cost but high value products to their customers by employing new supplier sourcing strategies (Kabukin, 2014).

The retail store can move to less competitive regions and launch their stores where it will take a while for the other retail stores to venture into. Dollar Tree Inc. can move to Asia or Africa where the population is high and most of the customers will be drawn to purchase their products. The company will be able to make high profits that will enable them to improve the quality of their products in the competitive market.

In order for Dollar Tree Inc. to achieve venture into the blue ocean strategy successfully they need to focus on six paths. The first one deals with looking at other industries in different sectors and identifying aspects that they can borrow. They then can reinvent the strategies to suit the retail sector and work to their advantage. Secondly, the retail store can look across complementary services from the retail sector, fashion and technology. The form of service that is being offered by the retail store can improve immensely, making them outstanding among the other retail stores (CorporateStrategyInstitute, 2017).

The third strategy does focus on focussing among the retail leaders like Wal-Mart and identifying the weaknesses that they have failed to notice. The retail store can then capitalize on the weakness to achieve a competitive advantage in the retail sector. The fourth strategy does focus on the firm looking at the emotional and functional draw that the customers have in their stores and that of the competitors. When evaluating the retailing sector from the customer perspective will provide Dollar Tree Inc. with an opportunity to reinvent itself and create a new market for its products.

The fifth strategy deals with the retail store looking across the vertical buying structure that is focussing on the suppliers and distributors. The blue ocean strategy deals with streamlining operations to eliminate any waste in the functioning of the retail sector (Kim and Mauborgne,2014). The suppliers and distributors play a vital role in supplying the retail stores with products when they need them. The introduction of just in time within the strategy brings an aspect of efficiency in the retail sector. The aspect that distinguishes the blue strategy from the red strategy is that the retail sector can identify suppliers who will be able to satisfy their new strategy.

The last strategy deals with looking across time. We are often told that the past is the best teacher; going through the archives will provide Dollar Tree Inc. with an opportunity to reshape itself. There are a number of things that can be borrowed from the past to enable the retail store to reshape the 13,500 stores that it has in the USA. The lessons from the past can be borrowed from different industries and restructured to benefit the Dollar Tree Inc. performance in the retail sector(Kim and Mauborgne,2014).

Task 3- Implementation Challenges

The shift from one strategy to another has a number of hiccups that may hinder the successful transformation. The first aspect involves high cost that the retail store is going to incur in investing in research and development (BlueOceanStrategy, 2017). As discussed in task 2, Dollar Tree Inc. needs to carry out a lot of research in different sectors to ensure they can formulate new ways to create a new market of operations. Research is often costly and will require a lot of dedication and support of the investors and the management team of the retail store.

The second challenge is getting a joint support from the employees and shareholders. The shift to the blue strategy will require the retail store to streamline their operations and introduce automation in different sectors. This means that there are employees who will lose their jobs in the process and they will definitely resist the incoming change. Furthermore, shareholders who have been enjoying the constant returns will not be happy with the experimental shift that is being done by the company. The limited consensus from the shareholders may easily incapacitate the transformation from the red to the blue ocean strategy (Becker, 2010).

The third aspect is resistance from the external environment. The introduction of a new strategy means that there are new laws that the retail store has to follow. The legal and regulatory framework will pose a challenge to the retail store as it does take time before they are certified for operations (Jussani, Krauker, and Polo, 2010). Additionally, the competitors will take advantage of this opportunity to draw the Dollar Tree Inc. customers to purchase their products.

Moreover, the supplies and distribution network will also have to be streamlined to meet the new strategy the retail store is aiming at. The aspect will reduce the number of suppliers willing to deal with Dollar Tree Inc. until they prove that they can be able to manage their operations in the blue ocean strategy. Suppliers’ pessimism is based on the failure of the company being able to pay them for the supplies they deliver to their store.

The planning aspect is one of the major challenges that businesses face when they are moving from one strategy to another (Kabukin, 2014). To avoid tis challenge Dollar Tree Inc. needs to have a tight plan that will enable a smooth transition from the red to the blue ocean strategy. A team should be set up to oversee the transition while the management team works on coordinating the operations of the retail store until the shift is done.

The last challenge that may hinder the transformation is the breakdown in communication. When the management team fails to communicate with the employees and their customers with their transformation process a lot of resistance is expected (BlueOceanStrategy, 2017). The reliance on gossip vines will lead to high employee and customer turnover, which may impact not only the transformation but the continuity of the retail store. Dollar Tree Inc. needs to institute a clear communication strategy that will dispel any rumours based on their transformation process.

Conclusion

In conclusion, based on the discussions in the essay the blue ocean strategy offers the Dollar Tree Inc. a new opportunity to increase their profit margins. It provides them with an opportunity to become a force that will reshape the retail sector with proper research and implementation strategy.

References

Barney, J.B. and Hesterly, W., 2015. Strategic management and competitive advantage concepts and cases. Pearson.

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