Technological
- Speed of technology transfer
- Through technology, information is readily available. This denotes that the consumer can acquire much information on a company without the knowledge or approval of the company. Netto needs to consider all aspects of its company’s movements since it could have repercussions on the company.
- Government and industry focus on technological effort
- Internet shopping is a convenient way of shopping; it is a revelation that is taking over conventional retail shopping and changing the face of distribution. Netto, currently, does not offer Internet shopping because it retracts from their company objective of undercutting the discount market by providing low cost goods. By introducing such services, it would increase company expenditure and, consequently, increase product prices.
The Ansoff Growth matrix is a tool that helps Netto decide their products and market growth strategy. Ansoff’s product and market growth matrix suggests that Netto’s attempt to grow depends on whether it enters the new market or have existing products to be entered in the new or existing market.
Ansoff Product
Markets
Existing New
Existing Market Penetration Market Development
New Product Development Diversification
The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategies.
Market Penetration
- Increase the market share of current products; this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and maybe more resources dedicated to personal selling.
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors, such as Aldi or Kwik Save.
Market Development
Market development is the name given to a growth strategy where the company Netto seeks to sell its existing products into new markets.
- New geographical market for e.g. exporting the product to a new country such as China, Japan and Australia.
- New product dimension or packaging
- New distribution channels, exploring the possibility of online shopping
- Different pricing policies to attract different customers or create new market segments. Netto want to attract different socio economic groups, in particular those in a higher group than the current consumers who fall into the C1 and C2 group.
Product Development
Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and require the Netto’s to develop modified products, which can appeal to existing markets such as (additional upgrades on e.g. a fruit drink).
Diversification
Diversification is the name given to the growth strategy where Netto markets its new products in new markets. This is the most risky strategy, e.g. the products that have been differentiated need to be continually developed since competitors will make or devise your products.
THE KEY POINTS OF NETTO’S SUCCESSFUL STRATEGY
There are a number of key strategy moves that Netto have made to enable their strategy to be successful. With their ability to adapt and operate successfully in four different international markets at one time, having an underlining impact on their strategy.
One Major point in the success of Netto’s strategy is the corporate culture they have embedded into the organisation, which flow from the top management to the shop floor employees; it has greatly assisted their strategy. Their corporate culture is characterised by a strong pattern of inform vertical and horizontal communication, and a free flow and access to information has also benefited their strategy. It has enabled the company to be flexible and responsive to the market, so it maintains its competitive edge. This embedded culture is illustrated by their employee scheme, which enables shop employees to come up with ideas for new lines and spots. Their great emphasis on employee involvement is illustrated by an employee incentive of a £1000 tax-free prize for an employee to successfully advise a new store location. Their belief and ability to build teams and contribute to the company culture has enabled the company to adapt themselves to match local needs of customers.
Another key point in Netto’s strategy is the way the organisation is structured. Their simple flat structure allows communication within the organisation to filter down much quicker and more accurately, rather then a complex structure. Also with the organisations focus on staff training, with the store manager being encouraged to be on the shop floor for 95% of the time, it ensures a leadership impression and, consequently, positive team spirit is created.
A further example of a key point of Netto’s strategy is the location decision and store format. Research they had undertaken identified that customers prefer larger stores with greater space allocation to different products with good access. This enables them to locate and format sites to this capability. An example of this was when Netto extended its operation to the UK; its first store was located in Leeds. The reason behind this was that the area had a high concentrated population with relatively low property prices, shopping habits and price sensitive consumers. The strategy also included the need to locate near to concessions such as bakery’s, newsagents, and butchers, which has increased Netto’s pulling powers because it complements their products and, thus, becomes attractive to consumers. With their property management department playing a major part in the company’s successful strategy, the department identifies potential sites under a key number of criteria such as accessibility, visibility and competition. With competition being a key factor in the store location process, competition for the majority of the time determines whether the strategy works or not.
One major key point in the success of their strategy is the company buying policy, with focus on consumer’s tastes and buying habits being of prime importance. This is illustrated by their introduction of regional variations to match the specific demands of the north and southern customers. The company’s commitment on its strategy of being a limited range discounter and operating on one in one out basis is an element of importance since it creates variation and choice for the customer.
Netto’s strategy of cooperating with other retailers in order to increase the cumulative attraction of the location has been a successful move since it has allowed Netto to increase its visibility and increase the number of potential customers it can attract in certain areas. Netto’s communication plan consists of T.V advertising (limited), local press and radio advertisements in order to attract these potential consumers. The radio and local press is a successful technique that targets local consumers. The company uses sponsorship and participates in neighbourhood initiatives to create a positive company image.
Netto’s pricing strategy has been a central part of its success, and is central to its marketing strategy. Their strategy allows consumers to buy everyday essentials at low prices rather than them having to purchase from the larger supermarket. This enables Netto to penetrate the German market because after the fall of the Berlin wall, the economic gap between Eastern and Western parts was still major. The east’s consumers, being regarded as low income and price-sensitive, allowed Netto’s entrée to be successful. This strategy allows Netto to compete on the basis of low prices and high quality. As their Managing director of Netto’s Food stores UK J. Rix say “Our strategy is to be the cheapest but not cheaper”
THE POTENTIAL PROBLEMS NETTO FACES IN THE MAINTENANCE OF THEIR COMPETITIVE ADVANTAGE
For any embryonic company, growth is dependant on many contributory factors; competition is seen as a very relevant factor. There is a great threat, especially within the retail market, that the market will become too saturated and only the strong will survive. With Netto, the company is rapidly growing and has already become a household name, but to what extent do Netto have to go to in order to secure and maintain their competitive advantage?
The first problem identified is the fusion of large companies in the retail market; this is possibly a circuitous response to a changing market environment. The formation of such strategic alliances has occurred between the UK’s leading food discounter Kwik Save and Sommerfield. This is threatening to affect Netto’s competitive advantage since both companies are recognizing the need for low cost goods without compromising on quality and service. This is creating a more competitive retail market. With Netto, they need to reposition themselves away from ‘low price equals cheap’ to ‘low price equals value’. This would mean altering the marketing strategy and redefining the company image. This is going to prove expensive and with companies such as Tesco’s strengthening its position as leading retailer, it’s going to prove too difficult. Tesco, although not a ‘limited range discounter’, is creeping into the discount market because of their value product range. However, with an established customer base that is somewhat loyal, Tesco is dominating the retail market.
Large supermarkets, in an attempt to increase sales, moved to out-of-town locations and reduced the number of high street outlets; this is partly responsible for creating the niche for the discount supermarket concept. However a significant problem Netto now faces is the intrusion of the larger supermarkets back onto the high street. Chains such as Sainsbury’s are beginning to open high street outlets to meet with consumer demand. The location of a business’s competitors is essential in establishing where to ‘set up shop’, thus presenting several potential problems for Netto and it may justify relocation.
Netto proved to be extremely successful during the recession in the early 90’s since price was the shopper’s number one motive for purchase rather than service or quality. However, today’s shoppers are becoming concerned with customer care, quality and convenience. The problem Netto faces is with consumer attitudes, these attitudes are changing and consumers are becoming more interested in diversity and variety, they are also purchasing more confidently. Big supermarket chains are adapting to these changing attitudes by providing retail banking, brown goods, computers, mobile phones and cars. Netto has to respond to these changes but with no loyalty scheme/failed loyalty scheme, a limited product range and no additional services, they may find it difficult to retain customers and will ultimately struggle to maintain their competitive advantage. Additionally, the need for good customer service and quality will require more staff training and further resources, thus resulting in more costs for Netto.
Standardization is a way of identifying a company regardless of location. However, it shouldn’t mean that all outlets sell the same products. Shopping habits in Netto’s northern counterparts are different to those of the British consumer; therefore, Netto should start implementing different strategies of selling to cover the UK and the northern counterparts. Again, it means adapting to the differentiated consumer needs and wants.
Technology has exploded into every market; it has clearly impacted the retail environment. The development of Internet has created the gateway to online shopping. This is a huge problem for Netto since they do not provide such services. It could be that in 10 years time, the majority of households will shop online. Until Netto responds to this movement, there is the possibility that Netto will become, to an extent, obsolete.
Another problem, which has been identified from the case study, is the organisation’s structure. Netto possess a simple, flat structure. This is ideal to reduce communication time, however, the simplicity may prove ineffective in a fast growing company. The company, therefore, requires a more complex infrastructure to cope with its growth, such as specialized departments and specialist staff. The impact of their current structure in today’s market will have a negative affect on Netto’s competitive advantage; it would be more financially viable to implement the new structure.
CONCLUSION
This report has analysed the majority of aspects of Netto’s movement into a niche market. The case showed that Netto was very successful in the discount food market; however, the time of entry was crucial. Netto’s entry profited from the static state of the UK market, after reaping the affects of the recession. They successfully targeted the price sensitive British consumer and since 1991 sales have accumulated to £275.7 million. The company’s marketing strategy has been deemed successfully, contributing to Netto’s growth. Nevertheless, sales shall slowly decline if Netto does not respond to the ‘needs’ of the external environment, such as the development of technology, the changing demographic profile and the aggressive competitors in a cutthroat market. Their position within the market isn’t certain and changes need to be implemented in an attempt to maintain their competitive advantage. As with any company, change is imminent in order to ensure survival.
REFERENCE:
- Marketing Communications, PR Smith, J.Talyor, 2001.
-
Principles & Practice of Marketing, 3rd edition, D.Jobber, 2001.
- Lecture notes from strategy marketing
PRESENTATION SLIDE
MT302 Strategic Marketing
Group report on Case Study Two: Netto
Module Convenor & Seminar Tutor:
Ian Combe
By Monica’s Group:
Monica Hon 99008589
Aysun Huseyin 00012868
Yuji Kamiyama 01010757
Gazooly Rahman 01000757
Tsz Hong Kwok 00021379
Toru Suzuki 00025070
Sandra Mejia 01017396
Louise Hammond 03032867
Deadline: Thursday 06th November 2003.