Netto looks for opportunities for cooperating with other retailers to maximise its product offer and cost efficiency. This is achieved in one of the following ways, by increasing the number of concessions in Netto stores these improve the efficiency of selling space and extend the range of retailer and increase the store traffic at the same time. Netto uses in store promotion to increase store loyalty and convey the idea that shopping in Netto is fun. Also the company congregates with other retailers to increase the cumulative attraction of the location.
At Netto the staff is trained in every aspect of the store operations, by employing such efficient work practices in stores as well as in their warehouse operations and by keeping their operations cost low Netto has easily maintained the low costs on the products thus maintaining their competitive advantage.
Netto’s Strategy would give returns at a later stage. With the mind set that cheap product means low quality products they could not attract the people from social groups A and B.They need to do some promotion campaigns about their product and make people aware of their product range so that a first time buyer can buy with some confidence.
Question 2. Pricing Strategy of Netto is a central part of Netto’s marketing strategy. What are the dangers of adopting such a strongly focused approach? (25%)
Pricing is very important to a product because it affects the customer’s perception of product’s value and its positioning versus the competition. A Products price is a major determinant of the market demand for that item. It represents the opportunity to recover cost spent in developing, distributing and promoting the product.
In having low prices than what the market expects Netto may loose its sales. Either customers will be suspicious of quality of products or their self concepts will not let them buy such low-priced products. The dangers of adopting such a strongly focussed approach are the biggest constraint in UK because the human psychology here is “low prices equals cheap products” where cheap means low in quality and for lower class. So, when people have that frame of mind the progress in capturing market is very slow. It’s like proving to each and every customer testing the new unbranded product with suspicion that it is good in quality! Without any televised advertisement.
Furthermore, if other retailers also adopt such strategy they will be more benefited because they have already got a good customer strength and loyalty. For example stores like Morrison’s offer better customer services and environment than Netto. The danger is that, the customer could see more improving conditions in other stores in the competition of Netto and as a result, the customer will have less loyalty towards Netto.
In case of any damage in any part of the operations NETTO will find it hard to recover the loss because their profit margin is very less. For example if manufacturing of a shampoo bottle takes 25p, distribution and selling takes 25p and 10 p is the profit margin (low cost marketing).If this shampoo bottle is damaged in the operations NETTO will have to sell 5 more bottles to recover this loss whereas if any other Supermarket making a profit margin of 25p on it will have to sell only 3 bottles to recover the loss. With low ‘foot falling’ in NETTO it will be hard for NETTO to recover the operational losses.
Question 3: With the grocery market becoming ever more competitive and a greater number of organisations fighting for a share of the low-priced sector, how may Netto retain its competitive advantage? What problems might the organisation face in doing this? (40%)
To retain the Competitive Advantage in the low priced sector Netto will have to maintain the quality products and good selling environment.Netto will have to launch new type of products and should put emphasis on promotion of ‘value for money’ and better customer services. The price is strength for Netto, but it is also strength for other stores as well, so now, it needs to focus on the enhancement of relationship between the company and the customers, because it will have to retain existing customer base instead of only attracting new ones because the cost of maintaining customers is lower than getting new ones. Also Netto should increase their number of stores. They should open more stores at prime location with better customer facilities which may include car park. Netto has about 1000 product lines which it should increase to serve wide varieties and tastes. This will give customers high amount of different alternatives to choose from the variety of products when he is out shopping.
Netto is thriving on the concept of ‘word of mouth’ this helps in making new customer base and loyalty but the process is very slow. To make it’s way through UK market, to retain its competitive advantage, and to get better customer base Netto has to prove the quality of their products, before customers even try them by placing greater emphasis on Television advertisements and other measures. Netto should try and make more of the market share by putting in some lucrative offers. Promotions of their products can add to their sales. At the same time they should do some survey on their products and services, were they served properly? Which difficulties they faced? If they liked the product or not? What changes do they recommend in the product or services? These would tell Netto the good or bad experience that customer experienced while shopping at the supermarket and would give Netto an insight and opportunity to serve customer better by identifying consumer need or business segments that are not being served properly. All these campaigns and surveys might cost Netto to cross its budget and to increase prices on some product lines but if Netto wants to stick to the lowest price approach it has to go into manufacturing of products which will be one time investment but will help Netto to maintain their lowest price culture and capturing the market share.
They should also introduce the advantage card facilities or some schemes to gain customer loyalty. The customer who does repetitive buying each month and even each week will be benefited but these are long term relationships in which both customers and seller are benefited.
The main problem which Netto will face in achieving all these objectives is the capital. It’s almost impossible to achieve all these goals without a strong financial backup. Also if Netto is increasing its product range the cost of maintenance in all the areas like operations, in the store, and keeping products with varying sale will go up.
References:
Jobber, David (2001) Principles & Practice of Marketing, London: McGraw-Hill
http://www.netto.co.uk
