CH-5 Case Study ---- Food Lion

Few Corporations have rewarded their (100) original backers as much as Food Lion has done. A share bought for $10 in 1957 was split into more than 12,000 shares by 1991 with a value of over $200,000. But, In 1967, The CEO lowered the prices of all its products 3,000 in number and had its sales increased by 50%. In 1990, Food Lion opened 100 stores. The first blow came in 1992.
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Case Study ---- Food Lion

Bad publicity a real one --- a compromise on quality -- a misadventure based on lack of control By 1993, over 1,000 violations registered and being countered Problem
Management team out of touch with operations Continued traditional methods and missed the message --for CA one should have greater product variety and a high level of customer services (Outboard Logistics)

Net Results
In 1994, forced to retreat and closed down more than half the stores it had opened in 1991.

Solution
Generate business strategies in line with the market forces
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THE THREE GENERIC BUSINESS STRATEGIES

Competitive Advantage
Uniqueness perceived By the customer

Low cost position

Strategic Target

Differentiation

Overall cost leadership

Industry wide

Focus

Particular Segment only

THE THREE GENERIC BUSINESS STRATEGIES 1. Overall Cost Leadership --- is based on creating a low-cost position relative to a firms peers. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain. 2. Differentiation --- requires a firm to create products /services that are valued and unique 3. Focus --- a firm must direct its attention toward:
1. 2. 3. 4. Narrow product lines, Buyer segments, and / or Targeted geographic markets. And simultaneously, it must take advantage of Overall cost leadership and Differentiation strategies. 5. Refer Ex 5.1 Pg 150.
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1. OVERALL COST LEADERSHIP Definition --- is based on creating a low-cost position relative to a
firms peers. The firm must maintain the relationship throughout its value chain and be devoted to lowering costs throughout the entire chain.

Interrelated Tactics 1. Highly efficient economy of scale facilities 2. Vigorous pursuit of cost reductions from experience 3. Tight cost and O/H controls 4. Avoidance of marginal customer accounts 5. Cost minimization in all the activities in the value-chain of the firm --6. Consult Exhibit 5.3, which provides sufficient details in each segment of value chain
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POTENTIAL PITFALLS IN OVERALL COST LEADERSHIP STRATEGIES

Too much focus on one or few aspects of valuechain activities ---- Exhibit 5.3 Pg 152 All rivals share a common input or raw material -- vulnerable to price fluctuations and quantities vis--vis availability (Example--?) The strategy is imitated too easily by competitors (Example ---?) A lack of parity on differentiation (Example --?) Erosion of cost advantage v/s informed customer (Example --?)
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2. DIFFERENTIATION Definition --- Creating differences in the firms

product or services by creating something that is perceived industry-wide as unique and valued by customers. ((Example) The --- (Ex 5.5 Pg157)

Creativity may include:

Prestige or brand image Use of innovative Technology Innovation coupled with Technology Features ---Customer Services Dealer Network
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POTENTIAL PITFALLS IN DIFFERENTIATION STRATEGIES Uniqueness that is not valuable to customers Too much differentiation ---- Software Languages Too high a price premium for a comparable worth Easily imitable differentiation techniques / features Losing CA (Brand Name) by adding new low cost products Varying of perceptions between buyers and sellers
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3. FOCUS STRATEGIES
Definition: A firm must direct its attention toward narrow product lines, buyer segments, or targeted geographic markets.
Strategies
It could be done by improving CA and CP by applying Porters Five Forces. It requires: Low cost position with a strategic target or the exploitation of a particular market niche that is different from the rest of the industry High differentiation, i.e., Achieve CA by dedicating itself exclusively to the segmented market

POTENTIAL PITFALLS IN FOCUS STRATEGIES

Erosion of cost advantage within the narrow segment Competition / Threat to Strategies Focusers can become too focused to satisfy buyer needs

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COMBINATION STRATEGIES*

Integrated strategy is the best strategy Remain Innovative Adopt modern day automated and manufacturing systems Exploit the profit pool concept across the industry

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COMBINATION STRATEGIES Ideal Solution: Integrating Overall Low Cost and Differentiation Strategies The successful combination is harder for the competitors to imitate. An integrated strategy enables a firm to provide two types of value to customers:
Differentiated attributes like quality, features etc Lower Prices due firms Overall Low Cost strategy

How can we achieve the above ---- next slide

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OPTIONS TO ACHIEVE CA THROUGH INTEGRATED BUSINESS STRATEGIES

Adopt Automatic and Flexible Manufacturing Systems Exploit the Profit Pool concept Exploit full benefits of Information Technology Make use of Porters Five Forces

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POTENTIAL PITFALLS IN ADOPTING INTEGRATED STRATEGIES

Get stuck in the middle. Understand challenges and expenses associated with coordinating activities in the extended value chain Miscalculating sources of revenue and profit pools in the firms industry What did J C Penny did between 1998 - 2000?

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Improved Store presentations Radically re-thought of merchandise Marketed the company brand items more effectively Slashed costs, closed down 44 stores, and cut 5,000 jobs
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INDUSTRY LIFE CYCLE STAGES & strategies

Stage / Factor
Generic Strategies

Introduction
Differentiation

Growth
Differentiation

Maturity
Differentiation Overall cost leadership Low to moderate Many Very intense Low to moderate High Production

Decline
Overall cost leadership Focus Negative Few Changing Low Low General management & finance Consolidate, maintain, harvest 15 or exit

Mkt Growth rate Number of segments Intensity of competition Emphasis on product design Emphasis on process design Major areas of concern Overall objective
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Low Very few Low Very high Low R&D

Very large Some Increasing High Low to moderate Sales & Marketing Create consumer demand

Increase market awareness

Demand Mkt share & extend product Life cycle

INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS Introduction Stage

Developing the product and finding a way to get the customers to try it Generating enough exposure so the product emerges as the standard by which all other competitors products are evaluated

Growth Stage
Strong increase in sales Primary concern is to build consumer preferences fro specific brands Revenues increase at an accelerated rate Competitors attempt to manipulate the business situation by brining in substitute and alternative products
Contd
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INDUSTRY LIFE CYCLE STAGES --- STRATEGIC IMPLICATIONS --Contd

Maturity Stage
Demands begin to slow down Innovative measures are required to re-coup the sales

Decline Stage
Maintain the product Harvest the profits from the firms portfolios Consider Exiting from the market Consolidate with other firms
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TURNAROUND STRATEGIES

Carefully analyze internal environment Generalized Strategies

and

external

Asset and Cost surgery to raise cash Undertake selective product and market pruning Consider Piecemeal productivity improvements Business strategies

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Re-engineering Divestment Outsourcing Privatization etc etc

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