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Strategic Management and Logistics: ASDA Case Study

Introduction

Recently there have been a lot of emphasis on both strategic marketing and logistics on research and business academics literature, illustrating a growing but confusing body of knowledge (Chernatory & McWilliam 1990, p112). Both strategic marketing and logistics disciplines have played significant role in the establishing basis for business research and development (p.83). This paper critically analyses how the Asda, a leading retail store in the UK, has applied some of the strategic management techniques to cope with the continual growing competition and the dynamic need of the customers in the global business of general merchandise. It offers a wide viewpoint on the company’s marketing and logistics portfolios, comparably with the competitors.

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Brief Background

Asda, a British supermarket chain is a retailer of food, clothing, toys, and general merchandise was founded in 1949 (as Association Dairies & Farm Stores Limited) in Leeds, West Yorkshire, England later adopted the name Asda in 1965 (Grime & Smith 2002, p. 1417). Its latest ownership of a mobile network known as Asda mobile completes its range of products and services to its clients (Nielsen 2001, p.33). In 1999, the second-largest retail chain after Tesco became a subsidiary of the American retail giant, Wal-mart, entering history chapter as the largest non- US subsidiary of the world’s largest chain of retail store (Wal-mart) (Eurofood 1999, p.121). By the time of acquisition, Asda owned 230 stores and Wal-mart paid £6.7 billion for the purchase (p.106).

The retailers’ long term ambition is to acquire 5% of the £1.9 billion market by 2012 (Finch 2006, p.9). In the recent year, Asdas sold its Dura brand 1005 DVD player for a record low of only £9, presenting UK’s lowest priced DVD player ever, and was reportedly sold out in two days within the promotion period (Clement 2005, p.423)

Retail Marketing Mix

Supermarket chains are said to be “battlegrounds for packaged goods”, with challenges ranging from shelf space competition as well as store promotions, weigh heavily even for the big industry players(Doyle, 2000, p.71). Worried about the market pressure prompted by huge market demands and competition, Asda management changed its strategy in packaging just to create visual appeal and unique flavor in its products, especially the food products (Grime & Smith 2002, p. 1415). Its wider market exposure increased threat from competitors like Tesco and Sainsbury, who had equally large marketing budgets as well as skills to knock off equally successful brands (Jacques 2002, p.66). Asda management was pushed back to the boardroom for a more strategic marketing analysis. It led to the company launching a variety of products to attract a wider market segment in an attempt to position its self as an all in one store, thereby offering a mobile network called Asda Mobile on top of retail food, clothing, toys and general merchandise, a strategy that has seen the retailer maintaining a clean sheet in business profitability despite the economic downturn in the recent years (Nielsen 2001, p.69).

Accredited for its lowest price strategy while offering quality products, Asda has won the Grocer Magazine award for the “Lowest Price Supermarket” for the past twelve years (The Grocer 2009, p.32). This claim was however refuted by the competitor, Tesco who complained to the Advertising Standards Agency, who later upheld the complaint and consequently ordered Asda to stop using the claim since the survey was not representative enough (monitoring only 33 products) to warrant such an accolade (Food & Drink Europe 2006, p. 22). Asda dropped the slogan, “officially Britain’s lowest priced supermarket” and instead adopted a new slogan twist, “Winner: Britain’s lowest priced supermarket award” (Clement 2005, p. 11). Despite such kinds of events, the company has successfully instilled a brand name and reputation among its clients and prospective ones through its lowest price tag backed by numerous marketing advertisements like, “why pay more?”, “Saving your money everyday!”, Britain’s most affordable supermarket!”, and so on (The Grocer 2009, P.9).

Asda retailer is known for its famous and figurative marketing campaigns in their advertisements that “scream” around the television screens and electronic billboards, all relating to the consistent message of “Asda price” (The Grocer 2009, P.12). The “Asda price” campaign ad see customers tapping their pockets, ‘chinking’ sound of coins is produced after the customer has finished shopping at the supermarket store, living them with extra coins to signify low costs (Sulivan & Adcock 2002, P.24). For the last three decades, the company has used celebrity figures like Julie Walters, Michael Owen and actor Leonard Rossiter to advertise themselves. Since its acquisition by Wal-mart, Asda has also used smiley face “rollback” campaign, a computer-generated image smiley face that bounces from price tag to price tag, knocking them down as customers watch in the process, to signify that Asda is the most affordable retail chain (Lloyd, Cooper, Bixby & George 1999, p.512). Other than eye catching ads, Adsa signed and adopted the Ethical Trading Initiative that requires companies to respect the rights of the workers for freedom of association and a living wage (p.561). For example, the retailer’s Valentine’s Day rose, which retailed at £2 a dozen were acknowledged to be ethically sourced by observers (p.562).

Digital POP has become a major hit since its innovation, since it’s accredited with changing the way buyers view brands. According to Lloyd, Cooper, Bixby & George (1999, p. 566) it is a fantastic way to talk to your customers in new and exciting ways and this may explain the reason why many supermarket stores and other outlets like banks, airports, bars, etc use it for their marketing. A research study carried out by Retail Marketing Services at Asda Wal-Mart stores illustrated that flexible messaging broadcast by the use of in-store Digital Television networks can have a positive effect upon shoppers’ retail experience, “and with correct delivery increase sales of advertised products (p. 243). The report elaborated that

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even though media content is key, the flexibility of the medium gives both the brand and the store an opportunity to focus as well as tailor their messages appropriately, and that “unlike more traditional means of POP, digital advertising enforces the retailer’s ability to react to changing conditions and competitive pressures” (p.244). Probably this is why Asda has adopted the digital POP marketing in its efforts to strategically position itself in the market.

Asdas’ Competitive Environment

The implementation of factory gate prices (FGP) by Tesco and Sainsbury in 2000 owes the hallmark of a new form of supply chain management (Grime & Smith 2002, p.1417). This determines the price retailers are willing to pay, excluding transport costs from the point at which the product is ready for shipment to their retail stores (p. 1418). In actual sense, FGP optimizes the entire transport network throughout the supply chain. While Asada still applied a bi-lateral transport contract with suppliers, Tesco and Sainsbury moved quickly to adopt this less costly and more convenient approach, hence presented a serious challenge to Asda (p.1422). The company later adopted the factory gate prices into its supply chain management. Asdas’ claim as the Lowest Supermarket Store in UK was refuted by the competitor, Tesco who complained to the Advertising Standards Agency (Finch 2006, p.19). The agency later upheld the complaint and subsequently ordered the Asda to stop using the claim on the grounds that the survey was not representative enough since only 33 products were monitored. Asda dropped the slogan, “officially Britain’s lowest priced supermarket” and instead adopted a new slogan twist, “Winner: Britain’s lowest priced supermarket award” (The Grocer 2009, p.18). Despite such kinds of events, the company has successfully instilled a brand name and reputation among its clients and prospective ones through its lowest price tag backed by numerous marketing advertisements like, “why pay more?”, “Saving your money everyday!”, “Britain’s most affordable supermarket!”, and so on (Lloyd , Cooper, Bixby & George 1999, p. 342).

The original store format dubbed “simple and fresh” was similar to Wal-mart’s style, and after acquisition, the style even got more emphasized with white and green colors, simple but large layout (Eurofood 1999, p.9). In essence, the supermarket store is averagely 20% larger, but the stock is 20% fewer than its rivals (pp.9-10). However, this preferred format of large store has brought an unprecedented challenge to the supermarket chain against the backdrop of tight planning regulations imposed by the UK government, thus hindering their efforts to expand its retail shops (p.14). However, this strategy seems to work in terms of increased storage capacity in the long term, that is, instead of adopting Tesco and Sainsbury’s format of more traditional local format of smaller-print stores, Asda has insisted on its strategy for long term niche stores (Doyle 2000, p.241; Eurofood 1999, p.10).

The retailer’s signing of the Ethical Trading Initiative (ETI) to adhere to the principle of respecting the rights of the workers through freedom of association and a living wage had one of its main challenges, implementation (Food & Drink Europe 2006, p.4). This is because the living wage concept largely depends on a particular country (p.88). Furthermore, it has never been easy for the retailer, more so when they are being accused of practicing unethical labor practices in the developing world to keep the prices low for their own benefits (p.5). However, Asda has tried to boost their image through sponsorship of sports events and even football teams like Sheffield in the 1990s (EBC 2008, p.3). Their current sponsorship deal is with Prenton Park that hosts Tranmere Rovers Football club and Kwik cricket for kids (p.5)

The retail supermarket signed an agreement with Edelman, global issues and Crisis Management and Communications Network, a deal which will see Edelman providing full support to Asdas’ customers within its regional markets (The Grocer 2009, p.13). Eldeman’s networks provide their clients with “on-call response, preparedness planning and training, testing and validation services” (p.14). According to Mike Seymour, International Director for Crisis and Issues Management at Edelman, “A crisis can happen anywhere and at anytime like lack of preparedness is a failure of corporate responsibility, leading to erosion of public trust and causing misinformation and rumors in the marketplace. In crisis situations, corporate management will be quickly thrust into the public domain” (The Grocer 2009, pp.14-15). This is likely to give Asda a competitive advantage in the seemingly competitive retail supermarket stores that heavily relies on public relations that forms an integral part of the marketing strategies.

Marketing Logistics Process Vs Marketing Mix

UK is said to have the most efficient grocery supply chain in the world and a key contributor to the healthy profit margins of its grocery retailers (Sulivan & Adcock 2002, p. 144). Any retailer will seek to maximize its profit in a sustainable manner (p.167). That is, like any other business; they will strive to obtain maximum returns from its overall operations, while at the same time maintaining long term customer loyalty. Ideally, a retailer maximizing its profits means applying a well designed store that is continuously full with the right product for shoppers to have the variety(Grime & Smith 2002, p.1424). If a retailer achieves this, it is likely to generate a high Shopper’s “perceived store shopping experience” (p.1425). This will not happen if any of the retail’s tactical mix fail for example if the store is located inconveniently, it will never be full, ineffective promotion will follow, shoppers would get discouraged from visiting the store, etc (Jacques 2002, p.345). In recent years, however, technology has played a major role in the logistics process; increasing the convenience at which the retailers reach their clients through delivery of services and advertising their products (p.347).

Asda has used the Chain management and efficient consumer response concepts to gain competitive advantage (The Grocer 2009, p.69). The retailer was the last among the major grocery retailers to centralize its distribution. Being the pioneer in the superstore category in the UK, the company stocked more lines, including non-food lines than its competitors (Grime & Smith 2002, p.1419). Again its focus was more on the branded products that suppliers delivered direct at the doorstep of their nationwide network (p.1421). However, this became tricky when the company experienced a backlog of vehicles at its doorstep jostling to offload deliveries coupled with huge administration costs for managing each store, where the management of each branch store had to deal with thousands of suppliers (p.1423). It centralized its buying and distribution functions, a decision reinforced by products’ label penetration (p.1426)

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During the periods of 1990s, Asda developed more distribution centers and restructured its network of stores, which rose from 130 to 230 in a single decade, thus led to the opening of a state-of-the-art automated clothing center in 1999 that was prompted by the success registered by George brand (Eurofood, 1999, p.14). The creation of seven consolidated centers in 1999 to coordinate the fresh produce chain saw the retailer contracting its services of freight movements to an LSP (p.19). This same year saw Wal-mart acquiring the retail chain, thus embarking on the redevelopment of the general merchandise products (p.21). More opening of the stores and strategic positioning was used to establish the 20 more supercenters with 50% of the sales space devoted to non-food lines, a strategy borrowed from Wal-mart (p.22).

The strategic location of Asda stores and products is in line with a research that found out that a prospective shopper will prefer a conveniently placed store to do their shopping before they even think of price or anything else (Grime & Smith 2002, pp.14120-1421). Furthermore, supermarket research has revealed that people usually go around a grocery store in a counterclockwise direction, starting on the right side, where Asda normally place its fresh foods and snacks (Grime & Smith 2002, pp.1417; Doyle 2000, p.10)

An input-output Retail Demand Management Model

To bolster its operations, Asda adopted an input-output Retail Demand Management Model (Doyle 2000, p.10). In this model, the input rate was meant to measure the number of shoppers entering their stores in a particular time period (p. 325). This was meant to improve accessibility as well as patterns of shopping. The output rate is the number of shoppers exiting the store in the same time period, that is used to gauge the system constraint in the store e.g. physical factors and the store personnel (Grime & Smith 2002, p.324)

Asda has also tried to cope with the increased and popularity of online shopping around the globe. The retailer first attempt to cope with the increased online shopping was in 1998 by launching its online retailer services, which began with a dedicated deport that was based in Croydon, South London (Finch 2006, p.13). However, it was closed due to low shopper response, but the online service continued by adopting the competitors’ (Tesco) store- based model (p.17). The retailer rolled out of the grocery delivery operations and entered into non-food online retailing that entails categories such as contact lenses, entertainment, furniture, travel, electricals, gifts, flowers, mobile phones, and many more expected to come (The Grocer 2009, p.512).

Asda is even looking for better prospects since its successful expansion to cover the UK from 30% to 35% in 2004, hoping to expand further (The Grocer 2009, p.514). It increased its commitment effort to increase its home shopping, expecting to cover the entire UK before the end of this decade (p.511). This is backed by the Grocer Magazine’s report that Asda has experienced turnaround fortunes in its home shopping services against its competitors (Grime & Smith 2002, p.63). To improve its logistical operations, the retail announced its plan to recruit up to 1800 new employees to cut a competitive edge against Tesco, especially on the online retail business (The Grocer 2009, p.517). To give Tesco a run for its technological skills, Asda launched www.asda-electricals.co.ke in 2007 to counter its competitor’s highly successful “Direct online shopping” (p.71). Still the following year, the company launched another online shopping website, direct.asda.com that has since helped them sell more products than never before, and helping the customers with additional value of convenience and cost-effectiveness selling products like homeware, toys and garden in large numbers (The Grocer 2009, p.88).

Recommendations

Marketing has evolved overtime, becoming more of a dynamic body of language that is controlled by the changing needs of the dynamic customers. In short it can be summarized as “a close fit between the capabilities of an organization as well as demands placed upon it by its external environment” (Allison & Uhl 1964, p.37). It therefore follows that what a customer need today will not definitely reflect what the same customer or another generation will need, hence the need for the company to consider their nature of marketing, product placement that, and opportunities in future (Wang & Nicholas 2005, p.119).

For Asda, I would recommend the following areas to be worked on, in relation to their strategic plans for the future: International markets and the logistics culture management strategy. It is certain that Asda has not taken the culture of logistics in its international marketing strategy, an area that its competitors especially Wal-mart has excelled in. In the growing competitiveness in the UK domestics markets, it is prudent for the retailer to consider venturing into the overseas market since their present strategy is more focused on the domestic market. But how can they do this without falling victim to the differences in the “culture” of logistics in the international markets (Allison & Uhl 1964, p.37). For example, many of the French and Germany retailers are privately owned or franchise operations and they seem to be volume and price-oriented in contrast to the UK and Dutch firms which are generally publicly quoted, margin- driven and retailers who have had a more constructive approach to supplier relations (p.38). Efficient consumer response ha been used to form the spirit of collaboration in varied businesses in the UK (Butler & Seib 2006, p.1). It is important for Asda to change its strategy that would allow it to embrace the spirit of collaboration with other firms outside the UK to place its at a higher position with its competitors worldwide and enhance the efficient service delivery to generate efficient customer response. Already Tesco and Sainsbury have implemented efficient customer response (ECR) to venture into international markets, particularly Tesco, which has generally applied the similar but unique model ECR in Ireland (The Grocer 2009, p.514).

The management of Asda should not solely be focused on the threat from the present competitor but even the possibility of a new entrant in the in their market segment (The Grocer 2009, p.514). The threat from the new entrant is normally greatest where there are low barriers to entry (Kanungo 2009, p.338). Some of the new entrants may have established themselves well in other geographical areas (countries) of the global market and may wish to venture into a new market segment where they have seen opportunity (p.341). One such industry that has faced the biggest challenge of new entrants in the Airline industry. The emergence of low cost airlines like the Virgin Blues rocked the established airlines like United Airlines and Qantas Airlines, which had to re-strategize their operations to remain afloat (p.342).

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With the increased international agreements creating borderless nations in terms of global business, Asda’s global presence will definitely impact on its channel structure if it resorts to increase global store. In fact, it is apparent nowadays that many companies avoid defining their missions as solely domestic in nature (Wang & Nicholas 2005, p12). It’s noted that foreign suppliers, global communication technology, as well as global communication affects all the firms in operation regardless of its defined boundary of operations (Allison & Uhl 1964, p.342). In case Asda decides to increase its market presence by expanding to exploit the available opportunities in other countries, the management must bear in mind penetrating such markets can prove very challenging. For instance, tracking cargo from Chengdu to Shanghai requires five days. Such may be a challenging, complex issue for a retail store that relies on foodstuff as one of its major chain of retail goods (Wang & Nicholas 2005, p12). The management must take note that as they plan their expansion, the logistics costs and complexity of channel of distribution will increase drastically.

When planning to expand, Asda will have to take into consideration the different government regulations in those specific countries that they intend to explore. Some of the regulations set by respective governments can be very intimidating for a global company operating and competing with local firms (Wang & Nicholas 2005, p19). Deregulation of a number of industries in many nations has generated a scenario where the rules of managing channel relationships constantly change with time. It is acknowledged that managers in the UK, especially the logistics ones have managed to deal with local deregulation policies in the management of their transportation, finances, and communications (Kanungo 2009, p.113). However, they have to learn to deal with the growing international deregulations movements. Furthermore, the ongoing integration of many countries in trading blocks or economic partnerships e.g. European Union is predicted to continue altering the face of international trade, transportation, communication and financial environments (Kanungo 2009, p.38). Asda managers therefore must be ready to develop flexible channel systems that does not only survive, but thrive in the wake of such global business environment changes.

As more channels of distributions adopt total quality management, quality and price alone are not likely to become a competitive advantage of any firm in any market. Total quality management (TQM) is a critical component of the channel- design process, since it directs that the focus should be on the customer’s point of view and not the company’s own views (Chernatory & McWilliam 1990, p.66). It is advisable that Asda adopt the TQM strategy in its effort of gaining competitive advantage rather than dwell on “low price” strategy.

Due to the nature of the present business, customer service plays a vital role in the success of any business (Clement 2005, p.16). Some issues like product availability, return policy and time of delivery must be analyzed since they are the areas where the competitors are likely to identify and capitalize on (p.19). It would be prudent for Asda to look for more areas to strengthen its base of revenue resources, strong customer loyalty, and employee satisfaction better than they do now.

References

Allison R & Uhl, K 1964, “Influence of beer brand identification on taste perception”, Journal of Marketing Research, 1(3): 36-9.

Butler S & Seib, C 2006, “Asda ends Scottish Widows tie-up”, The Times Online.

Chernatory L & McWilliam G 1990, “Appreciating brands as assets through using a two-dimension model”, International Journal of Advertising, 9(2):111-19

Clement B 2005, “Asda managers told Asian staff to show passports”, The Independent.

Doyle P 2000, Value-Based Marketing: marketing strategies for corporate growth and shareholder value, Chichester, John Wiley.

EBC 2008, “Asda Kwik Cricket”. Web.

Eurofood, 1999, “Wal-Mart buys Asda in UK retail shock”. Web.

Lloyd M, Cooper, M, Bixby W & George D 1999, “Digital Revolution in marketing at retail”, Journal of the Academy of Marketing Science, Sage Publications, Inc ISSN: 0092-0703.

Finch J 2006, “Asda’s new stores prove not-so-Essential in the discount market”, The Guardian.

Food & Drink Europe 2006, “Asda Wal-Mart guilty of anti-trade union activity”.

Grime I & Smith G 2002, “Consumer evaluation of extensions and their effects on core brand: Key issues and research propositions”, European Journal of Marketing, 36: 1415-28.

Jacques E 2002, “The traps and pitfalls of Rip off markets”, Daily Telegraph.

Nielsen C 2001, The Retail Pocket Book, London, NTC.

Sulivan M & Adcock D 2002, Retail Marketing, Chicago, Chicago University Press.

The Grocer 2009, “Asda still cheapest, but Morrisons wins on service and stock”. Web.

Wang Y & Nicholas S 2005, “Learning in Non-equity Alliances: Operating Contractual Ventures in China”, Journal of the Academy of Marketing Science, 8(2):119-39.

(Kanungo R 2009, Managing diversity: coping with the surge in multicultural practices, London, Sage Publishers.

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