This sample will let you know about:
- What is External environmental analysis?
- What is Internal environmental analysis?
- Explain Evaluation of different types of strategies.
Business strategy is an action plan formulated by businesses to achieve its goals. It provides direction to be followed to achieve success. It is a combination of actions and decisions which helps in accomplishing the purpose like achieving effectiveness, mobilising resources, taking competitive advantage etc. In this report Sainsbury is taken as an organization. It is the leading supermarket chain in UK. It was established in London. It provides general merchandise, food, clothing, home products, electronics and financial services. This report covers the formulation of strategic business plan for the organization based on the analysis. It includes both internal and external environmental analysis to identify the organization's capabilities and to know the competitive position of the business Porter's Five forces model is applied.
External environmental analysis
To understand the impact of external environmental factors on the business or the industry as a whole Pestle analysis is used. It will help marketers to analyse and monitor the external factors and their impact on the organization. A detailed analysis of it is done below.
Political factors (High): This factor relates to the government role and interference in the business. This factor is driven by political stability and instability, tax policy, trade restrictions etc. Currently, Qatar, an Arab country, is under going crisis with a blockade imposed by Saudi Arabia and UAE. All these countries are allies of UK and if UK takes the side of Saudi group then its political relation with Qatar will hamper (Fosher, 2018). This will affect the entire retail industry. The sovereign fund of Qatar holds 26% stake in Sainsbury. So, any type of tension with Qatar will affect the business operation of Sainsbury. Order Finance Homework Help from our experts!
Economic factors (High): This factor have an adverse impact on the business operation and profitability. These factors include change in foreign exchange rates, change in interest rates, economic performance of the country, disposable income of consumers etc. In the past few years the prices of diesel and petrol have been rising at a slow pace (Kush, J., 2017). Also, the implementation of high fuel tax will cause the price of fuel to rise more. So, high fuel price will result in increase in transportation cost. This have an effect on entire industry. Overall, it will affect the business operation in form of reducing profit margin or increasing the price for the consumers. Another issue is rising salary expectation of the employees. As Sainsbury employees large number of workers to perform simple task so its becomes difficult for it to increase the salary and it will also increase the expense of the Sainsbury. Thus, the impact of these factors will adversely affect the functioning of the business.
Social factor (Low): This factor relates to change in attitude, belief of the consumers. It includes health consciousness, age, population growth etc. In UK, the consumers are more health conscious and there is a trend towards healthy eating (J Sainsbury SWOT & PESTLE Analysis. 2019). Following this trend and making healthy dietary changes will help organizations in long term success. This trend will affect the whole industry. Sainsbury has already adopted the change and it also provides the complete nutritional information about the product and how material is acquired. This factor will have less or no impact on the Sainsbury's business operation.
Technological factor (High): It refers to the technological advancement in the business operation and its impact on the business. Mostly if business adopted the emerging technology it will help in building its business and attracting more customers, otherwise it will become difficult for business to survive (Grünig and Morschett, 2017). The emergence of artificial intelligence and advancement in analytics has helped business to know more about business operation and consumer insights. It will positively affect the industry if properly implemented. Sainsbury has not implemented any of these technologies in its operation but development and implementation of these technologies will help in increasing the profitability of Sainsbury.
Legal factors (Moderate): This factor refers to all the legal laws and regulations within which organizations needs to conduct its business. It includes employee welfare law, consumer law, health and safety law, advertising standards laws etc. the new sugar law levied by the UK government which aims to reduce the sugar content in drinks by 20% in 2020 will adversely impact the business (Yaxley, 2017). Also, there is a new law for banning advertisement of high fat, salt and sugar food or drink product for children under the age of 16 will also affect the marketing and promotional tactics of organizations. The introduction of these two laws will affect the entire industry. This has affected the Sainsbury's promotion practices. It has started producing product based on these laws. But, overall, it has a moderate effect on the Sainsbury business operation.
Environmental factor(Moderate): It refers to the negative impact businesses create over the surrounding environment. The scarcity of resources, increasing pollution, increasing threat to life has put the pressure on organizations to take some initiative for the environment. Organizations through its CSR initiative take some step to reduce the negative impact. Increasing environmental awareness has influenced the whole industry. Sainsbury has launched an initiative to reduce wastage across all its operating activities (Bush, T., 2019). It has also collaborated with 'Waste and Resource Action Programme' to reduce packaging and food wastage. This factor will have a moderate effect on Sainsbury and it will help in gaining positive public image and increase the profitability of business.
Internal environmental analysis
Just like external factors there are some internal factors which are within the organization that affect the business operation and over which business can exercise some control. To clearly understand the internal environmental factors, SWOT analysis is done for the organization.
Strength: These are factors in which organization perform well and differentiates it from the competitors. The strength of the Sainsbury is its diverse business with strong market share. It is operating over 1200 supermarkets (Paschalidou and et.al, 2018). The Sainsbury has shown strong profitability and reduction in net debt. Also, it has differentiated and high quality products which has attracted customers and provides customer satisfaction. It has recognised as a great place to work with employee diversity.
Weaknesses: These are the factors which stops the organization from achieving it objectives (Teoli and An, 2019). The major weakness of Sainsbury is brand switching which makes it challenging for Sainsbury to retain customers, also some of its products are higher in cost as compared to the competitors. Another weakness is low profit margin and growing cost which is affecting its profitability.
Opportunities: It refers to the favourable conditions which can be grabbed to take competitive position (Tapiador, 2020). Sainsbury has the opportunity to target rural areas as nowadays village people also demands branded products. Also it can implement technology analytics which will help in gaining customer insights.It can also target emerging markets such as India, China etc. to expand its business.
Threats: It refers to anything which can negatively impact the business (Bhasin Hitesh, 2019). The major threat to Sainsbury is its competitors which includes Asda, Aldi, Resco etc. Also, the impact of Brexit on the prices of its products. Aldi and Lidl are the major threat as both provides high quality products to the customers at the low price by providing huge discounts which are attracting customers towards it. Order assignment help from our experts!
It is the crucial part of every business which helps in doing through analysis of the organization's strength, weaknesses, opportunities and threats which helps in knowing the current competitive position of the business and forming strategies. Porter's Five force model is applied to understand clearly.
Threat of new entrants (Low): It refers to the threat of new entities entering into the market which is determined using barriers to entry (Helmold, Terry and Hummel, 2020). Currently, it is difficult for new firms to enter the market as it already dominated by big giants such as ASDA, Lidl, Morrisions, Tesco etc. Opening a business like Sainsbury will require hundreds of millions with no guaranteed success.
Bargaining power of suppliers(Low): The small the number of suppliers, more will be the power and visa-versa (Lewis, 2017). The bargaining power of suppliers in UK is low as there are numbers of suppliers available with similar products to cater to the needs. So, Sainsbury has negotiate for a better deal which will help in increasing its profitability.
Bargaining power of buyers(Low): The bargaining power of customers in UK supermarket industry is low as customer can switch to another competitor as products provided are undifferentiated (Paja, Maté, Woo and Mylopoulos, 2016). This make industry attractive and will help in increasing profits of Sainsbury.
Threat of substitute products (Moderate): The threat of substitute for food products is low as customers cannot stop eating (Harding, 2017). Other than this, Sainsbury is facing substitution threat from small stores, corner shops and shops selling organic products. But these stores are not able to meet all the requirement of customers. Customers can switch to other competitors as products are homogeneous. So, threat of substitute products is moderate for Sainsbury.
Rivalry among existing firms (High): The competition in UK supermarket is very intense as its is occupied by big retail giants like Tesco, ASDA etc. The tough competition makes the industry less profitable as every organization tries to lowers its prices than its competitors to take price advantage (Rothaermel, 2016). Emergence of Aldi and Lidl has also squeezed the profit margins. Thus, Sainsbury is currently facing high and tough competition.
The above information will help Sainsbury in analysing its current competition position and the factors affecting the profitability of the business based on which strategic plan is formulated.
Evaluation of different types of strategies
Different types of strategies are available that can be used by the organization in achieving its objectives but each strategy can be used in specific situation. So, Ansoff matrix is applied, which is a tool used by organization to analyse and plan their strategies. A detailed analysis is given below.
Market Penetration: In this strategy, Sainsbury will use its existing product in the existing market. The objective of the firm is to increase its sales and market share (Loredana, 2016). This can be done by attracting more customers by decreasing the price of the product, acquiring the competitor in the same market to increase the market share, increasing the promotion activities etc. This strategy is the least risky as it mostly uses the firms existing resources. This strategy has a limit and after meeting the saturation point, organization has to apply another strategy.
Product development: In this strategy, Sainsbury will develop a new product in the existing market. This strategy involves lot of research and development. This strategy requires strong understanding of current market and should be able to provide innovative solution (Azhibayeva, 2016). This strategy can be done by investing in research and development, acquiring competitors product, entering into partnership for establishing new distribution channel. This method is more risky than market penetration.
Market development: In this strategy, Sainsbury will enter into new market with their existing product. Expanding into new market means entering into new location, customer segments etc. This can be done by entering into domestic and foreign market or new customer segment (Medarac, Vignali and Vignali, 2016). This strategy is good if company has core competencies in relation to specific market segmentation. Since, organization is expanding into new market, it requires huge capital for investment in research and development which makes it more risky.
Diversification: In this market development strategy, Sainsbury will enter the new market with the new product. This strategy is the most riskiest strategy, as both market and product is new while require to incur huge investment which may be outside the core competencies of the firm. This strategy has the advantage of high rate of return along with high rate of risk (Agbola and Otchere-Ankrah, 2018). Also, it has the benefit of gaining foothold in an attractive industry which will result in reduction in overall business risk. Need Assignment Examples?Talk to our Experts!
From the above information, it can be said that Sainsbury should use market penetration strategy as its objective is to implement new analytical system in its existing market with the existing range of products and services and the aim of doing this is to attract more customers and increase its revenue and it also does not require much investment unlike other strategies.
Sainsbury is one of the largest supermarket chain in UK. It provides everything under one roof from groceries and clothing to home products, electricals, financial services, kitchen and dinning etc. It was founded in 1869.
Mission and Vision
The mission of the Sainsbury is to become the first choice for consumers by delivering products and services of high quality at a competitive price through working together and faster.
The vision of Sainsbury is to be the most trusted retailer where customers and employees loves to work and enjoy shopping.
Political factors: The political instability in Qatar will impact the business of the Sainsbury as Qatar's sovereign fund is having a stake of 26% in Sainsbury and if Sainsbury takes the side of Saudi group it will adversely impact the its business operation.
Economic factor: The increasing fuel cost is affecting the business. If the cost of fuel kept on increasing then the transportation cost will also be increased. Consequently, it will lead to increase in cost of production and price of the products and services. It will be in the hands of Sainsbury to either increase the price of the product or reduce the profit margin.
Social factor: There is a shift in trend from junk food to healthy food because of the increased consumer awareness. Consumers are demanding more and more healthy and organic product. Sainsbury has already started the production of healthy food along with all the health related details.
Technological factor: The increase in technological innovation in retail industry requires Sainsbury to introduce the same in its organization. The technological analytics will help the organization in taking better decisions and improve performance.
Legal factors: The imposition of two new laws by UK government , that is, reduction in sugar content in drinks by 20% and banning the advertisement of high fat, salt and sugar food or drink product for children under the age of 16. This has affected the promotional strategy of the Sainsbury.
Environmental factor: The increasing awareness of environmental friendly products has pressurized organizations to take relevant steps. Sainsbury has taken initiative to reduce the waste in its all activities and has also joined hands with 'Waste and Resource Action Programme' to reduce packaging and food wastage.
Tangible and tactical strategies
Measure and evaluation
After implementing strategies it is the responsibility of the organization to measure it regularly. There are different methods of measuring performance which are discussed below.
Feedback system: A proper system should be implemented which will help in identifying and evaluating the implement strategy in terms of customer feedback, increase in sales, customer loyalty etc. Also, a regular feedback can be taken from the employee to give a perfect feedback about their views, performance, customers insights when they enter the supermarket (Organizational Feedback Definition, Importance, Steps & Overview. 2020). Is there anything which is not right and needs to be taken care off. Evaluating the feedback system will help in measuring the plan and in taking corrective actions at the right time to improve the performance.
Setting targets:The best way to measure the performance of the business is by setting the targets. It should include target customers, sales target to be achieved, customer return rate, employee turnover rate, employee performance, profitability of the organization etc. Such indicators should be implemented and measured to evaluate the change in performance level and whether set targets are achieved or not (Keum and Eggers, 2018). Also, identifying the reasons are not reaching the set objectives from the feedback system and taking relevant actions to ensure success.
Benchmarking: In this, companies compares the performance of the business with its competitors in the same industry which is best in class. Benchmarking helps in identifying the opportunities for further improvement with respect to what has been done by its competitors (Benchmarking. 2020). It helps in analysing the company with superior performance and comparing its business process with the Sainsbury helps business in its operating process and recommend changes. So, Sainsbury can set up the benchmark and compare its result with the other competitors and take preventive actions to improve its performance.
From the above it can be summarized that for the successful achievement of goals it is essential to formulate a business strategy. This strategy needs to planned after carrying out all the relevant activities. The macro environmental analysis is conducted which helped in identifying the external factors that will influence the Sainsbury business operation and the major threat is from political and technological factors. The internal analysis was also done which helped in identifying the strength and weaknesses of the business based on which Sainsbury has a strong financial support and the major threat is from the competitors. Also, porter's five force model was used to know the competitive position of the business. At last a business plan is formulated to achieve the objective of technological advancement and measures to evaluate the success.
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