Before starting with the analysis, some areas that will not be featured in this analysis need to be set out... - Porters Value Chain will not be featured in this analysis, as firstly, the case study is not expansive enough to give enough data to create a decent value chain analysis. Secondly, the value chain is a very outdated way of looking at a company, being concocted in 1980, business operations have changed since then and to be a credible way of strategic planning, it should be as close to reality as possible, which it is not. - This analysis is about the DSGi group. The case study mentions a few of its SBU’s, but not enough about them all to create individual analysis of all SBU’s. So where information is known, it is analysed and a strategy is formulated, otherwise this analysis is about DSGi primarily.
Where is DSGi now? Current Position Strengths (competencies) Operates in 15 Countries Market Leader in the UK Sales = £7 billion / Profits £300 Million (with growth) Owns PC World, The Link, Curry’s (& Currys.digital), Dixons Website Continued Growth A number of strong brands in the electrical retailer business (brand awareness) Weaknesses (disadvantages) Sluggish performance DSGi, in need of a complete re-haul Running out of strategic road High street sales getting more inefficient at generating profit margins Dixons rebranding has created confusion among customers Much wasted management, tackling bidding battles Trouble with getting US electrical businesses “Silo” off the ground Likely to close down PC City chain in France Underperforming European markets with Significant fraud levels online Opportunities (environmental trends that offer positive impact) Online sales recently trebled Future said to lie out of town and Internet sales 2 to 3 goods year ahead predicted Scale is increasingly important Home delivery and installation will attract customers Global Expansion Threats (trends that negatively impact) Supermarkets and internet taking market share/profit margins Consumer to consumer trading (E bay) Fast price deflation Changing Market Fiercely competitive sector / very intense competition
Rise in raw material prices affecting supplier costs Business/Profit margin crippling rents on high street Over-reliance on profits from extended warranty sales Very thin margins
Financial Audit: Profits and Sales are still growing, but the margins that DSGi have to work with are very tight and any serious competition in pricing, could cripple the whole Currys chain. Between 1991 and 2007, sales have gone from £1.7 billion to £7 billion and profits from £82 million to £300 million. John Clare expects good sales and profits for 2 or 3 more years at the current market position. Profits are not guaranteed in the long term, which means that long term sustainability in the marketplace is not certain. Current Strategy: It should be assumed, from the case study, that DSGi currently use the strategy of selling everything at the highest that they can possibly sell it without being uncompetitive, this will mean that they will not be able to eventually keep up with competitors online, which have less overheads and so have more threshold in their profit margins. DSGi’s ability to cope with the demands of its environment is under threat. They currently cannot stay as competitive as its online counterparts, which mean that a new strategy needs to be created, that not only defends its market and market share, but also increases its scale and can be ultimately more competitive in its current environment.
Porters Five Forces of Competition: Threat of new entrants: Supermarkets Where electrical item have become more affordable and to an extent, disposable. Supermarkets have been able to add them to their roster of products, especially Tesco, with its large Extra stores, Tesco Direct and Tesco Home Plus, able to provide many of the same products as the DSGi group and its stores currently offer, which means that customers don’t have a need to walk into a retail outlet and buy what they could buy (at even more competitive prices) whilst shopping for groceries. Internet Internet retailers have always relied on lower overheads to win in price wars with high street stores. In recent years retail stores have been aggressive, to try taking some market share back from its online counterparts. A new company is started online almost every day that offers what you can buy on the high street for less, just take a look at the hundreds, even thousands of results you get when comparing prices on a website like Google Shopping or DealTime. This means that barriers to entry are low and becoming increasingly lower.
Power of buyers: The power is truly now in the hand of the buyers, because of the highly competitive market, they can buy from wherever and whoever they like.
Pricing wars mean that there is little room for growth in the market, as well as this, it’s hard to compete and so the customers can pick and choose, which tends to be whoever is the cheapest and can offer the best speed of delivery and service. DSGi group rely heavily on profits from extended warranties, if a customer doesn’t want this, then that makes a dent in their potential profits, again, the power is in the buyer’s hands.
Threat of substitutes: Currys and PCWorld sell a lot of good quality products, they concentrate on selling branded goods that are a premium price, but are made to a better quality. Many electrical goods that they sell are easily and readily available elsewhere, much cheaper. There are substitutes that are priced even lower that are made to an inferior quality, but are sometimes half the price, such as PC Components, peripherals, LCD television, digital cameras, mp3 players, etc... Substitutes are very widespread and Tesco has leaped onto these, as well as Asda, both who sell cheaper, more mass-cheaply produced electronics like DVD players and LCD TV’s from unknown brands.
Extent of competitive rivalry: Competitive rivalry is fierce, as already stated. The market is over saturated, with cut priced products that Currys cannot match. PCWorld does not have as much competitive rivalry, this is due to there being no other competition apart from Maplin (who are a high street store, not out of town store) that sell similar products to PCWorld. The internet poses the most threatening competition, but there will always be a place for out of town retail outlets such as PC world, in the computer division of DSGi.
Power of suppliers: Suppliers we can assume are also operating at cut throat margins. This will be due to the cut throat nature of the electronics industry. If a supplier wants their product to be purchased, then it will have to be sold at a price that it can still be competitive for the seller to sell at. If it is not, then it won’t be bought by the seller and they will go elsewhere to find a cheaper supplier. So again this means that the power is really in the buyer’s hands.
Size of market: The market is not a monopoly or oligopoly; it is a market form in perfect competition. There are many buyers and many sellers. The market for electronics is huge and unlike it used to be, it cannot be an oligopoly anymore, because the barriers to entry are low and the market has completely changed, in just over a decade.
Growth Rate: There is an increasing growth rate that is sustainable, yet with more competitors edging into the market, there is little room for growth in DSGi’s current form as there are so many sellers. This may mean differentiation and a complete change in what they sell, how they sell it and more importantly where they sell it.
Maturity State: From a product life cycle model, the market would be at the maturing state, where growth will not come without innovation and reinvention.
Where does DSGi want to be? Political
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UK government is relatively stable, which means that sales of electrical goods are safe purchases for consumers currently. Government tax rates are assumed to be growing, which means higher costs of being in business. The UK is part of the EU, WTO and has good links with the Fareast, Middle East, North America and European countries not part of the EU. This means that it is easier to do business abroad, an example of which is the fact DSGi currently work in 14 countries, without trading agreements, this would be harder.
Economical - The UK economy is under stress, with inflation growing; a recession is likely, which means that there will be less interest and demand from consumers, because of a lack of disposable income. - Long term prospects are not so good, there might be a falling trend in demand for certain electrical goods, for newer products, this is due to disposable incomes and less time in people’s lives to use all of these products. Socioculturual - Foreign products such as the cheaper imitations of electronics that are sold in Tesco and the likes of are not as trusted as big named brands like Sony, Samsung, Toshiba and Sharp. This means that it’s harder to introduce and ultra-cheap electronics to consumers easily. - In the current time, there is a lack of time with many consumers, as our lives are becoming increasingly more work related, almost turning into a “24-hour society”. Products that help free up time or help to de-stress when we do have a free moment will be welcome by the public. - Older generations are becoming increasingly interested in electrical goods that feature technological features, with increasing disposable incomes, this area of the market might not be tapped fully. - Society is becoming more “green aware”, maybe this is an area that DSGi can promote and gain attention through. Technological - Technological and electrical goods are going to become cheaper and easier to make as time goes on, maybe this means that DSGi needs to concentrate on the very top end of the market, where products are not as easy/cheap to produce and thus only attracting a niche market, which can stay profitable with larger margins. - The market for technological products could be more innovative and helpful, offering something that you can’t get in a supermarket or on the internet. - The market and its distribution methods have changed; consumers can get things delivered now, without stepping foot in a store, so a more innovative solution needs to be introduced.
Ansoff Model: Existing Products in Existing Markets: Market Penetration (Current Position) -
DSGi main interests are to increase market share Uses competitive pricing strategies, Advertising, Sales Promotion, Price Matching Trying to secure dominance of growth markets Operates in an existing mature market, over saturated with competitors, hard to compete solely on price.
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DSGi could continue to focus on the market and products it knows well and maybe bring in loyalty schemes More information on customers’ current needs and wants may help with providing the products that they require.
Existing products in New Markets: Market Development -
Operating currently in 14 countries, this could be expanded and scaled up, to become market leader in countries other than the UK. New logistical and distribution channels to deliver to customers, maybe offering ability to deliver items the same day they are ordered online, in an area where there is a Currys/PCWorld. Online companies don’t have the logistics to make this work, but Currys have retails locations everywhere, making shorter distance of distribution feasible. Works with the “Want it now” society we live in.
New products in Existing Markets: Product Development -
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Changing the product portfolio to be higher end electronics, larger margins, more of a niche area. Instead of focusing on having PCWorld and Currys separate entities, combing them and creating larger out of town stores that cater for both markets, this will mean that new products can be added and the current market is still being served but also given more choice. Larger electronic and technology stores will give consumers an alternative to large Tesco stores and the Internet, where almost everything can be bought. A large outlet selling everything that those consumers can actually buy products there and then and also giving those large discounts would garner a lot more attention. Newer products with a leading edge could be then sold.
New products in new markets: Diversification Gains: - Move into areas of the market where profit margins are higher and price deflations are not as high. - New products that are harder to find/buy online or elsewhere - Niche market, fewer stores are needed and selling products and services that are harder for consumers to purchase elsewhere or as competitively. - Sustainable competitive advantage - Barriers to entry are low in current market, with current products. A move into a new market with new products will bring better future security of home market. DSGi need to diversify its market and product offerings, but where it should be going, does not fit into the Ansoff Model. So instead, this is an extension to the model that would be better suited to DSGi. Adapted products in adapted markets: Redefining & Diversifying (Position for Future)
The market needs to be adapted. It would be too risky to enter a new market with new products; especially as Currys is still the market leader in electrical. Modelling the current market around a market that Currys could create, would redefine the market, as well as redefining what they currently sell, how they sell and where they sell.
Supermarkets and the Internet will continue to take market share; they have a better competitive advantage in price and numbers of electrical items they can shift. Coming up with a way of selling products that are hard to sell online, as well as products that supermarkets either cannot/do not want to sell or would find hard competing with.
(Proposed) Adapted market & products: - Expansion and Scaling up of operation in other countries. (become market leader elsewhere) - Start to introduce the Currys name to all other countries operations. - Use distribution and logistics to the businesses advantage. Internet companies don’t have the same distribution structure, nor can scale theirs up to what DSGi currently have to their disposal. - Create a synergy of the online side of the business and its offline retail side. - Building more out of town stores. - Larger stores that incorporate all computing and electrical businesses under one roof, this will mean that pricing can be more competitive, more choice for consumers, can compete on range of products online companies sell. - Closing down high street stores will mean, underperforming, low profit margins, crippling rents, over reliance on extended warranties for profits and the changing market can be stopped and reversed, by the change in market and products. - Concentrating on selling products that consumers are wary of buying online, such as white goods, expensive electronics, items that are needed the same day. - Using DSGi’s new out of town superstores, the infrastructure and logistics can be put in place for same day delivery of products for time-poor consumers. This will work with distribution channels (such as large superstores) effectively to fulfil orders. - Use “stack them high, sell them low” techniques. More bulk buying to sell in Costco/Makro style selling techniques. - Better training for staff will ensure excellent product knowledge to help customers, which is what Comet (Currys competitor) relies on. Corporate Objectives: - Become market leader worldwide - Find market niches that are yet undeveloped. - Adapt the market to make it fit the new approach - Change the way electrical and computing products are bought by consumers.
How might DSGi get there? DSGi seem to have a reactive strategy and this needs to change, as the market is swiftly changing, leaving the whole group in the past. A more proactive new product and market strategy will suit them best in the future. Being a market leader in the UK already, means that DSGi can use their market position to implement changes easier. Consumers already trust the brand and in the UK, the brand is synonymous with electrical items. Corporate goals need to be clearly specified and acknowledged by the whole group. Having corporate objectives, as previous stated will help with getting the group to where they need to be at. As previously talked about, having new unique selling points will diversify not only the current market, but help adapt the market and change it to fit in with the future of DSGi. This in turn will
mean that Currys will differentiate themselves from their competitors enough to alleviate tough competition. An idea that might work to get rid of heavy competition, especially from Supermarkets such as Tesco, would be to join forces with them. Have in-store Currys/PCWorld areas where Tesco/Sainsburys/Asda currently has their own electrical and computing products. The benefit to the supermarkets is that they would get a cut of profits from sales, more customers coming into the store, trained Currys/PCWorld employees to help customers and no need to devote an entire team of people to sourcing and purchases those sorts of products on behalf of the Supermarkets. This idea works for DSGi as well, as if it closed down its high street stores, it would have out of town and supermarket retail locations which are better placed where consumers are more willing to purchase items now. The costs of retail locations on the high street is crippling the Currys, Out of Town retail locations will be on a per-customer basis cheaper than selling on the high street. Most people buy electrical goods now on the Internet, in retail parks or in Supermarkets.
Which way is best? The first step that needs to be followed up is identifying and meeting customers current needs. DSGi have an aggressive approach in regard to keeping hold of their market. In the past they have been expansionist, which what should be pursued in the future to scale the business up. Short Term Goals (current): - Creating good profits and sales for the next 2-3 years. - Scaling up the business because of thin margins - Earnings growth that satisfies investors - Overseas growth - Defensive with the Supermarkets - Defensive overall in all areas Long Term Goals (future): - Instead of competing with Supermarkets, head into joint ventures with them, such as in store Currys/PCWorld departments - Global Expansion - Becoming market leader in every country it operates - Synergy of internet and retail presence - More out of town superstores - Departing the high street - Increasing margins, through changes where, how and what the company sells - Expanding business into new areas that are underdeveloped or niche areas of the market - Creating & modifying infrastructure, distribution channels to deliver same day delivery to customers. Research must be undertaken to be able to make calculated risks, to gain competitive advantage with the resources available to DSGi.
GAP Analysis: DSGi are currently at the stage between no expansion and expansion but with no diversification. This means that the market is changing all around them very quickly, especially in this industry. Supermarkets and the Internet have creeped up on Currys to provide what they sell more competitively. DSGi should push for the company to become more involved in expansion, with diversification; this would mean that the group would be more proactive with their approach to the market and not lose their market leader status. As this report detailed earlier, getting involved with the supermarkets phenomenal success in electrical goods would be worth it, it would create a market extension that would firstly increase sales and secondly, hold back some competition. Future market demand? Future market demand will continue to grow in this sector, as electrical goods are becoming cheaper and cheaper and more readily available from everyone. Competitor Reactions: - Competitors could lower their prices again, but this would cripple many of them. - Expansion overseas to compete there - Deals with rival supermarkets that DSGi do not operate within - Larger out of town retail locations to match those offered by DSGi, if superstores that incorporated PCWorld and Currys are to be built.
How can DSGi ensure arrival? -
Evaluation and Control Procedures Sustainable competitive advantage reached Company policies to be adhered to by employees Clear understanding / Communication with employees Support of the decision makers in the organisation Change attributes among direct line employees Employee commitment in making marketing strategy work, rewards given when all strategies and objectives are reached to employees that helped attain them. Training of staff to develop new skills and product knowledge, with effective implementation Monitoring and Organising of budgets, so as to keep on track to achieve targets and objectives
Structure: Action Plan / Programmes / Systems / Policy’s A synergy of all departments would mean that the whole group would work seamlessly and attain objectives faster and more cost effectively. DSGi seems to have strong systems in place, but weak management. This is an attribute of being in a low change market. But unfortunately the market in the last decade has changed at a phenomenal rate and so management have not been quick enough to notice the changes and implement a good, effective strategy.
The DSGi group, after implementing changes that are detailed in this report should have strong structures in place, as well as skilled management that are able to embrace change and implement new strategies to the adapted marketplace that they do business in today.