Whole foods focused differentiation strategy

Strategic ManagementNeed Two Replies To Each Discussion

Whole Foods

Student 1 Response to Discussion Question 3.1

Pertinent Management Issues The pertinent management issues of Whole Foods Market is to ensure the organization maintains its competitive advantage despite the economy. As discussed in the case study, the decline in the economy had negative impacts on the growth and competitive advantage of the organization. Leaders in Whole Foods Market should continue to focus on their current strategy and examine ways to maintain their competitive advantage.

Analysis and Evaluation

Five Forces Model:

According to Thompson, Strickland, and Gamble (2012), the strategy of Whole Foods Market best aligns with a focused differentiation strategy. A focused differentiation strategy is “concentrating on a narrow buyer segment and outcompeting rivals with a product offering that meets the specific tastes and requirements of niche members better than the product offerings of rivals” (Thompson et al., 2012, p. 136). More simply put, the strategy of Whole Foods Market is a focus on a narrow buyer segment offering unique, differentiated products.

Market Target:

A focused differentiation strategy aims at securing a competitive advantage with a product designed to appeal to a specific group of buyers (Thompson et al., 2012). The specific group of buyers Whole Foods Market works to satisfy are those who have particular interest in natural and organic foods. Whole Foods Market has a strategy that will “help support the health, well-being, and healing of people (customers and Team Members) and of the planet” (Thompson et al., 2012, p. C-10). Additionally, Whole Foods Market places emphasis on customer satisfaction through the second of seven core values, “satisfying and delighting our customers” (Thompson et al., 2012, p. C-11). Whole Foods Market secures their buyers by strategic placement of stores, choosing upscale areas of urban metropolitan locations with high-traffic shopping.

Product Differentiation:

A focused differentiation strategy also aims at securing a competitive advantage through the uniqueness of a product. Buyers must value the brand’s uniqueness for product differentiation to be successful. Thompson et al. (2012) state “successful differentiation allows a firm to do one or more of the following: command a premium price for its product, increase unit sales, gain buyer loyalty to its brand” (p. 146). In the case of Whole Foods Market, the uniqueness of the brand as perceived and appreciated by buyers, which gives them a competitive advantage. Buyers pay more for their products, but feel they are getting better quality so they are more willing to accept the increase in price. Thompson et al. (2012) highlights the importance of uniqueness and states “the most successful approaches to differentiation are those that are hard or expensive for rivals to duplicate” (p. 150). If a Whole Foods Market consumer no longer feels they are receiving the best quality on the market, they will likely begin shopping elsewhere.

Action Plan and Recommendations

Some pitfalls to a differentiation strategy that Whole Foods Market should be cognizant of include the following: charging too high a price premium, the easy development of rival competitors or rapid imitation of a product, and an unenthusiastic response from buyers (Thompson et al., 2012). If Whole Foods Market falls victim to any of the pitfalls, they are at risk to lose their competitive advantage.

My recommendation to Whole Foods Market would be to continue looking for ways to cut organizational costs to ensure they are maintaining competitive prices for their products. If they are unable to do so, product prices will increase which will catapult negative effects for the organization. For example, if prices increase, rival competitors might be able to offer lower prices on similar products and therefore the response from buyers will shift toward favoring the competitor.

References

Thompson, A., Strickland, A., Gamble, J. (2012). Crafting and Executing Strategy; The Quest for Competitive Advantage: Concepts and Cases, 18ed. New York, NY: McGraw-Hill Irwin.

Student 2 Response to Discussion Question 3.1

SWOT Analysis

Strengths

Market leadership. Whole Foods Market (WFM from hereon) is the world’s leading natural [and organic] foods empire (Johnston, 2008). It prides itself on its differentiated product line of high-quality natural and organic products. This product offering ranges from “produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritional supplements, vitamins, body care, educational products such as books, floral items, pet products and household products” (Whole Foods Market, 2011, p.4). Through the years, WFM has acquired a track record of not only satisfying and delighting their customers; but has also achieved a unique image for its commitment to community and environmental sustainability.

The Company’s strong market position is further evident through its widely dispersed operations. “As of September 25, 2011, [it operates] 311 stores in the United States, Canada, and the United Kingdom. [The] stores average 38,000 square feet in size and 10 years in age” (Whole Foods Market, 2011, p.3).

Customer loyalty. Another one of Whole Foods Market’s intangible assets is the strong buyer loyalty and goodwill. This is because the stores represent more than a “fancy grocery store” and are in fact more of a lifestyle store. It is no surprise then that “customers come from a 20 mile radius to shop at Whole Foods as compared to just two miles for the typical supermarket shopper” (Harbin & Humphrey, 2010, p.4).

Competitively valuable alliance with suppliers. Whole Foods Market creates and maintains win-win partnerships with suppliers which simultaneously enhance product quality. WFM provides “more money to producers, ensure[s] better wages and working conditions for workers, and utilize[s] sound environmental practices” (Whole Foods Market, 2011, p.5).

Organizational knowledge. Whole Foods Market makes a rolling effort to share its collective knowledge and has made “a significant and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance over the last 31 years” (Whole Foods Market, 2011, p.3).

Weaknesses

Heavy reliance on quality products. If suppliers are unable to continue with the quality, quantity, or the variety that is required; or if other grocery chains increase their product line of natural and organic foods (Whole Foods Market, 2011), then WFM will certainly find it hard to uphold its quality standards.

Higher costs than competitors. In the face of a rising number of cost-conscious shoppers, who are more frequently using coupons, preparing more meals at home, opting for store-brands rather than premium national brands, WFM may simply appear as a fancy store with unreasonable prices.

Opportunities

Rising buyer demand for natural food products. The cumulative U.S. grocery industry saw a 1% increase in 2010 with approximate sales of $563 billion. “Within this broader category, natural product sales through retail channels were approximately $65 billion, a 7% increase over the prior year” (Whole Foods Market, 2011, p.3).

Growing through expansion. Whole Foods Market seeks and seizes expansion opportunities primarily through new store openings in premium and upscale real estate sites. Its current opportunistic real estate strategy is concentrated on opening stores in international locations as well as existing trade areas (Whole Foods Market, 2011)

Threats

Loss of sales to substitute products. The grocery store industry in United States is certainly filled with a vast variety of stores, large and small, cheap and pricey. Although most stores differ from each other in the types of customers they attract, they are still, for the most part, competing for the consumer’s food budget. (Harbin & Humphrey, 2010)

Disruption of supply chain. Whole Foods Market relies heavily on purchases made from a singly third-party supplier – United Foods Inc. – and has recently also renewed its relationship through until 2020. Any kind of delay, disruption, cancellation, or inability on part of United Foods to deliver products to WFM stores may significantly damage the operations. (Whole Foods Market, 2011)

Costly new regulatory requirements. As mentioned before, any new laws that require the reformulation of certain products to meet tougher standards (Whole Foods Market, 2011) may threaten the continuation of WFM’s operations at current costs and systems.

Pertinent Issues

In light of the abovementioned threats and issues, it appears that Whole Foods Market needs to address the pertinent issues of maintaining its strong market position while offsetting the higher prices that are currently turning off the rest of the consumer group.

Action Plan

Increase Community Visibility

Whole Foods Market must capitalize the integrity associated with its image and brand-name which it has worked to acquire over the years. People have come to trust WFM for its commitment to quality foods, support of local farmers, and dedication to sustainable agriculture and environment. WFM stores must therefore garner pay back for their brand within respective neighborhoods through increased community involvement. Community initiatives – such as creating healthier lunch boxes for kids, holding local farmer markets alongside store property, organizing informative sessions about healthy foods & healthy planet – may earn WFM the title of “The Ultimate Grocery Store” within the community that it operates.

Increase the Range of Value-Priced Items

Whole Foods Market must additionally take advantage of the quality assurance that comes with its name, while expanding its line of value-priced items. By offering products which are healthier and yet economical, WFM will have the power to attract in customers beyond its loyal core group. Such value pricing will also reassure hesitant customers that they can live a healthier lifestyle without having to damage their household budgets.

Marketing through Pamphlets and Flyers

This is an avenue which may enable Whole Foods Market to advertise its brand-name, company knowledge, and value pricing to gain a larger consumer share of the grocery industry. Advertising “Whole Foods, Whole People, Whole Planet”, its core values, along with feel good statements, may encourage more customers get their groceries from WFM. Such marketing must additionally reassure customers that they can actually afford to shop at WFM because its extensive product line also incorporates value-priced items.

References

Harbin, J. L., & Humphrey, P. (2010). Whole Foods Market, Inc. Journal of Case Research in Business and Economics, 2, 1-17. Retrieved from http://www.aabri.com/manuscripts/09288.pdf

Johnston, J. (2008). The citizen-consumer hybrid: Ideological tensions and the case of whole foods market. Theory and Society, 37(3), 229-270. DOI:10.1007/s11186-007-9058-5

Whole Foods Market. (2011). Form 10-K. Retrieved from http://wholefoodsmarket.com/sites/default/files/media/Global/Company%20Info/PDFs/2011_10K.pdf