January 10th, 2018
Woolworth’s Business Strategy
Business entities have to make a choice among various strategic options depending on the market or industry in which they operate. Unlike the corporate level strategy that involves the choice of a strategic alternative across all markets or industries it operates in, business-level strategy involves the choice of a strategy that determines how an entity will employ its resources in a specific market or product area in relation to the strategies employed by competitors (Nandakumar, Ghobadian, & O’Regan, 2010). Porter (1985) argues that business can chose between three strategic choices: a differentiation strategy, a cost leadership strategy, and a focus strategy. Cost leadership involves the pursuit of low in-put costs to ensure the entity offers its products at a lower price as compared to the competitors (Porter, 1985, pp. 12 – 14). A differentiation strategy involves the entity proposing a unique value to the customers in its industry by providing products or services with special attributes that distinguish it from competitors (Porter, 1985, p.14). The focus strategy involves the selection of a specific market segment, which the entity then pursues by either offering lower prices (cost focus), or unique distinctive attributes (differentiation focus) (Porter, 1985, p.15-16).
The importance of business-level strategies is that it ensures that entities use their resources efficiently and in the most effective way to enhance performance. For instance, in a study using a sample of UK small retailers, Megicks (2007) found out that whereas attributes of functional level strategy were not related to business performance, attributes of business-level strategy such as exclusive distribution, clear position in relation to competitors, and expansion via diversification were related to performance. Nandakumar et al. (2010) have also found similar effect of business-level strategy, with a hostile market being suited by a differentiation strategy and high dynamic markets by a cost-leadership strategy. Beneficial effects of the business level strategy on performance have also been reinforced in other studies on retailers (Morshett, Swoboda & Schramm-Klein, 2006).
In Woolworths, an example of business-level strategy is cost-leadership. For instance, as recounted by Mules (2011), the company has engaged in price wars with Coles, the second largest player in the grocery industry in Australia. In one of such competition strategies, Coles lowered the prices of milk to change its perception as not being price competitive, which forced Woolworths to lower its prices to similar levels (Mules, 2011). Being the market leader in Australia, Woolworths also controls a large chain of supermarkets that increases its purchasing power thus forcing lower prices from suppliers (Mules, 2011). However, more recently, the entity appears to have adopted a focus strategy in some of its operations. Such a focus strategy is for instance evident in its 2012 activities such as integrating sushi bars, MSA beef and lamb, and fish, bag and bake, which are targeted to specific customers (Woolworths Limited, 2012).
Megicks, P. (2007). Levels of strategy and performance in UK small retail businesses. Management Decision, 45(3), 484-502. DOI:10.1108/00251740710745098
Morschett, D., Swoboda, B., & Schramm-Klein, H. (2006). Competitive strategies in retailing – an investigation of the applicability of Porter’s framework for food retailers. Journal of Retailing and Consumer Services, 13, 275-287. doi:10.1016/j.jretconser.2005.08.016.
Mules, R. (2011). Supermarket wars. BusiDate, 19(4), 2-4.
Nandakumar, M. K., Ghobadian, A., & O’ Regan, N. (2010). Business-level strategy and performance: The moderating effects of environment and structure. Management Decision, 48(6), 907-939. DOI:10.1108/00251741011053460
Porter, M. (1985). Competitive advantage: creating and sustaining superior performance. New York, NY: The Free Press.
Woolworths Limited (2012). Strategy and objectives. Retrieved from http://www.woolworthslimited.com.au/page/Who_We_Are/Strategy_and_Objectives/