The retail industry deals with merchandizing of products and services. This involves the purchase of goods in bulk then reselling them in smaller proportion to consumers.
Some companies in the retail industry produce their own branded products and services to gain competitive advantage over other companies in the industry. The ability to produce branded goods and products in the retail industry is a critical success factor because most companies sell homogeneous products.
The product idea of manufacturing a fridge with water and ice dispensers developed after assessing consumer’s problems and needs in the twenty-first century. Consumers value convenience and instead of buying separate appliances for preserving food, an ice maker and water dispenser, one product that serves all these functions would offer convenience to consumers.
Industry Analysis
A company can offer homogeneous products and services or use a differentiation strategy, which offers unique products with additional features. The degree of differentiation refers to the ingenuity in making a product or service. Highly differentiated products are unique and contain more features than competitor’s products.
In the retail industry, differentiated products and services give company a competitive edge over competitors.
To attain and maintain market leadership, an organization should regularly reinvent products and services to match dynamic consumer needs. The retail industry carries homogeneous products with very few companies offering consumers branded differentiated products.
The retail industry is one of the oldest trades known to man. According to Wrice, the retail industry began with barter trade in the ancient world (2). The industry has evolved over time from small kiosks and fragmented supplies to huge self-service hypermarkets that allow consumers the convenience of obtaining whatever they want under one roof and shopping at the comfort of their neighborhoods.
Advancement of technology has played a key role in transformation of the retail industry. E-commerce allows organizations to have virtual stores and consumers can shop from the comfort of their homes.
The cost structure analysis establishes the correlation between cost and volume. Cost structure also aids in the calculation of breakeven point when determining projected profitability of a product. Before undertaking any manufacturing project, management should establish a cost structure depending on the organization’s cash flow needs.
Manufacturing methods can be either capital or labor intensive. Labor-intensive projects have high variable costs while capital-intensive projects have high fixed costs.
Depending on the available resources or methods required for manufacturing the product and affinity towards technology, the management may choose a capital structure with high variable cost or fixed cost. The retail industry has balanced cost structure that requires both fixed costs and variable costs.
The retail industry is shifting from the traditional structure by adopting flexible structure that allows companies to meet consumer’s dynamic needs more conveniently.
In the wake of the advanced technology, companies have virtual stores, which target consumers who do their shopping online. The retail industry has moved away from urban shopping to increase consumer’s convenience by avoiding traffic jams in urban centers.
Retailers now use suppliers’ integration that allows consumers to cater for all their shopping needs under one roof; for example, most companies in the retail industry are incorporating fast-food outlets, a bank and a fueling station to increase consumers’ convenience when shopping.
Environmental Analysis
It is fundamental to undertake environmental analysis of an industry before undertaking any capital-intensive venture. The industry’s environment determines the strategic choices made by a company to gain a competitive advantage over competitors. Environmental analysis helps a potential investor to understand the dynamics of the macro and micro dynamics of the industry.
Demographics refer to the composition of the population in an organization’s target industry. The demographics establish which products are likely to be on demand in the market.
Demographics of the retail industry are made of vast diversity of ethnic backgrounds; for instance, the number of baby bloomers and the graying age group has been on the rise over time, something that underscores the need to have environmental analysis for the retail industry to thrive. A refrigerator is a necessity in any homestead because it helps preserve food.
A refrigerator with additional features such as water and ice dispenser increases offers consumers value for their money in terms of cost and space. The graying community and baby bloomers buy food products in bulk to avoid making many trips to the store hence the need to have a fridge. In addition, the working population also requires the convenience of a refrigerator because people mainly shop over the weekends.
As aforementioned, the retail industry has transformed radically due to the advancement in technology. Companies in the retail industry have adopted virtual stores enabling them to engage in international businesses. E-commerce has changed the relationship between organization and consumers.
To remain competitive, organizations in the retail industry must understand the dynamics brought about by new technology. Technological advancement has not only presented companies with the opportunity of undertaking international business, but also increased organizations’ vulnerability to competitive rivalry.
The political-legal environment regards the rules and regulations governing an industry. Therefore, it is imperative for organizations to understand the political-legal environment of an industry before engaging in any venture. Before manufacturing of the fridge with water and ice dispenser, the patents and trademarks, idea investigation is pertinent to avoid any legal suits, which could jeopardize the manufacturing process.
The economic environment determines consumer’s purchasing power. In the advent of global economic recession, consumers’ purchasing power has gone down significantly. Analysis of the economic dynamics will help an organization to establish which strategies it should adopt to give consumers the incentive to purchase their products and services. Strategic positioning of the refrigerator using product differentiation and penetration pricing will help in launching it into the market successfully.
Competitive Analysis
Industry’s competition analysis uses the five forces framework viz. “the threat of new entrants, suppliers bargaining power, buyers bargaining power, threat of substitute, and competitive rivalry within the industry” (Porter 6).
The nature of the retail industry allows consumer to switch from one retail store to the next without incurring any cost. This flexibility increases the buyer’s bargaining power. For retail stores to gain market leadership, they have to offer consumers with value and fair prices. Supplier bargaining power increases when there is a limited number of suppliers carrying a scarce commodity in an industry.
Lack of consumer loyalty in the industry makes the retail business attractive to potential investors. The retail industry offers consumer products purchased from manufacturers hence it is quite difficult to differentiate the product and this scenario decreases customer loyalty and in turn increases threat of new entrants. To mitigate the threat of new entrants, retail stores have adopted low-pricing strategies and offer outstanding customer service to create customer loyalty.
The retail industry faces a formidable threat for some of its product lines from substitutes available to consumers. The threat of substitutes is low in the retail industry because the cost of obtaining alternative products is relatively high. A substitute for the fridge with a dispenser is coolers used to preserve foods and drinks. The fridge offers more space for storing food and has additional features, which will appeal to consumers.
It is imperative for new entrants to carry out analysis of competitors’ SWOT (strengths, weaknesses, opportunity and threats) analysis in an industry so that to device strategies, which will counter competitors’ moves giving a potential investor a competitive position in the industry.
According to Hutchison, Macy, and Allen, to counter the strengths of competitors, it is critical to analyze the strengths and weaknesses of major players in the industry (16). New entrants can use the weaknesses of a competitor as opportunities to gain market share in the industry.
Major companies in the retail industry include Target and Wal-Mart. The companies’ brand names are well established; therefore, new entrants into the market need to garner enough resources to create awareness about their products and services, thus building a brand identity.
Convenient location, good customer care, and supplier integration are critical success factors in the retail industry. Although major competitors like Walmart sell homogeneous products and services, they gain competitive through the ability to maintain low cost thus offering consumers the lowest prices in the industry.
New entrants into the retail industry can use product differentiation, intensive promotional campaigns, and pricing strategies to gain market share.
Competition in the retail industry is high and might be challenging for a new entrant; however, strategic positioning will help to gain a significant market share.
Low pricing strategy and product differentiation will help in market penetrating for the fridge with a water and ice dispenser. In addition, intensive promotion strategies will help create awareness of the same. The new refrigerators distribution channels should be exclusive virtual stores to reduce administrative costs thus offering consumers low prices and value.
Projected expenses and profitability
Before embarking on manufacturing of the fridge with a water and ice dispenser, developing a financial plan will be helpful in evaluating the projected expenses and profitability. Cost analysis helps to evaluate whether it is worthwhile to undertake a business venture or not.
Total costs for manufacturing the fridge, like any other manufactured product, will include “direct material cost, direct labor cost, manufacturing overheads, distribution, marketing, and sunken cost” (Viscusi 1424). The activity-based method is most appropriate when apportioning the manufacturing overheads. The projected profitability calculations commence after establishing estimates of demands for the company’s product.
Market analysis should help establish potential demand, which is essential in estimating profitability levels. To achieve profitability, the total cost of manufacturing a unit of a product should be below the break-even point. If the venture is profitable, the manufacturing of the fridge should commence immediately after market testing.
Conclusion
Retail industry has undergone major transformations over the last few decades. The transformations are attributable to changing dynamic consumer needs and advancement in technology. The environmental and competitive dynamics of an industry help to identify appropriate strategic choices for new entrants.
Evaluation of the competitor’s weakness and strengths help to identify strategies appropriate for launching a new product into the market. A financial plan helps to give the projected expenses and profitability of a product to determine whether it is worthwhile to undertake the project.
Works Cited
Hutchison, Thomas, Macy, Army, and Allen, Paul. Record label marketing. USA: Focal Press, 2010. Print.
Porter, Michael. The Five Competitive Forces That Shape Strategy, Harvard Business Review, 2008.
Viscusi, Kip. “Regulating the Regulators.” University of Chicago Law Review 63.4 (1996): 1423-1461.
Wrice, Mark. First Steps in a Retail Career. Australia: Macmillan Publishers. 2002. int.