Integrated cost leadership/differentiation strategy is Woolworths’ competitive advantage. It is also connected with Woolworths’ pricing strategy and customer demographics. Keep reading to learn more.
Integrated Cost Leadership/Differentiation
Woolworths has adopted various business-level strategies and integrated them to drive its operations in the highly competitive Australian retail sector. This approach is referred to as Integrated Cost Leadership/Differentiation. For instance, the company has identified specific markets to serve under various categories such as supermarket, liquor, consumer electronics, home improvement and general merchandise among others. Its Integrated Cost Leadership/Differentiation business-level strategy highlights cost leadership and differentiation. It shows that Woolworths cannot survive with a single business-level strategy in the highly competitive Australian retail sector.
An Integrated Cost Leadership/Differentiation strategy has ensured that Woolworths leads competitors and deter other competitors from gaining access to the market and its market shares.
Merrilees and Miller (2001) noted that structural changes through radical innovations in the Australian supermarket industry have driven competition to secure competitive advantages for players who wish to dominate in the future. Today, Woolworths has identified several markets or customers to serve. For instance, the company has identified many specific areas as supermarkets, liquor, petrol station, general merchandise, consumer electronics, gambling and home improvement among others in which it has created core competencies and competitive advantage. The company generates most of its revenues and profits from these markets in which it can satisfy customers’ needs. Under these broad markets, Woolworths has developed narrow targets for its business-levels strategy and competitive advantages.
Its strategic land acquisition strategy in prime areas will block other competitors from opening new branches once Woolworths establishes new outlets. This strategy limits participation of other competitors like Aldi in the Australia retail sector.
Woolworths uses an integrated cost leadership/differentiation strategy as a business-level strategy in the highly competitive Australian retail sector. For instance, the company has combined cost leadership and differentiation alongside a technology-driven strategy to lower costs and drive sales of home-branded products. Consumers can scan bar codes of products by using their phones and make purchase orders. Goods are delivered at their homes. This strategy shows how Woolworths has leveraged modern technologies to reduce queues and deliver fast convenient services to its customers.
In its integrated cost leadership/differentiation strategy, Woolworths focuses on low cost to deter competitors such as Coles and Aldi from acquiring its market shares (Hanson, Hitt, Ireland, & Hoskisson, 2014). Specifically, Woolworths and Coles have engaged in strong price competition to ensure that they retain their customers. For instance, when Coles priced a litre of milk at $1, Woolworths followed with the same price. Low prices result into increased market shares and revenues. Woolworths has used cheap petrol incentives to draw shoppers and compete successfully with Coles. Incentives, school promotions and other special offers support the company’s cost leadership strategy. At the same time, Woolworths engages in never-ending discounting of popular home-branded products to facilitate growth. The company has been a leader in providing cheap fresh foods for its customers.
In Australia, Woolworths has specifically focused on home-branded products as to drive low costs. For instance, fresh foods and milk are generally low-priced home-branded products that drive a cost strategy. The company intends to double the number of home-branded products (currently, there are roughly 1500 – 2000 home-branded products in Woolworths). This strategy drives low-costs and locks out branded products.
The cost strategy, as a part of an integrated business-level strategy, increases the profit for the company and therefore, it may not end soon despite calls from other firms to regulate such practices. The government does not intended to favour any retailers or control prices of goods in order to allow competition to thrive.
While all retailers aim to differentiate themselves, Woolworth has a differentiation strategy integrated in its broad approach. For instance, Woolworths has created a competitive edge through its excellent logistics systems and highly organised suppliers’ contracts, which ensure that goods are delivered at the right time. In addition, the company uses technology to manage its supply chain and inventory. Organised employees supported by strong leadership have impacted the company positively. In fact, employees are responsible for creating competitive advantage and reliable business-level strategy at Woolworths. In addition, Woolworths drives its differentiation business-level strategy with excellent and well-funded marketing campaigns. For instance, all its delivery vehicles are branded for visibility.
Implication
The integrated cost leadership/differentiation has resulted into the ferocity of Australian supermarket wars (Grant, Butler, Orr, & Murray, 2013). Hence, retailers must continue to develop new strategies as they strive for leadership in the Australia retail sector. Overall, it has been the interplay between innovation and strategy, which has shaped the supermarket industry in Australia (Merrilees & Miller, 2001).
Costs, differentiation, home-branded products, technology, land acquisition and technology among others have resulted into the creation of an integrated cost/differentiation business-level strategy for Woolworths. While the strategy has worked well for the company, Woolworths continues to face serious competition from Coles and other retailers. The company, therefore, must continue to innovate and improve its business-level strategy to create competitive advantage for continuous growth. Only innovative and strategic retailers will survive in the Australian retail sector as competition increases.
References
Grant, R., Butler, B., Orr, S., & Murray, P. (2013). Contemporary Strategic Management: An Australasian Perspective (2nd ed.). Australia: John Wiley & Sons.
Hanson, D., Hitt M. A., Ireland R. D., & Hoskisson R. E. (2014). Strategic management: Competitiveness and globalisation (5th ed.). South Melbourne, Victoria: Cengage Learning Australia.
Merrilees, B., & Miller, D. (2001). Innovation and Strategy in the Australian Supermarket Industry. Journal of Food Products Marketing, 7(4), 3-18. Web.