Pestel analysis of sainsbury
J. Sainsbury Plc established in 1869 is a leading retail organisation with a chain of Sainsbury's 502 supermarkets and 290 convenient stores (Annual report 2009) across United Kingdom. It also has a financial interest venture in the form of Sainsbury's bank.
The company workforce consists of over 148,000 employees across United Kingdom. The company caters to 18 million customers per week.
External environment of the company - Major competitors
The company's chain of Sainsbury was the UK's biggest food retailer until 1995 when competitors like Tesco Plc and ASDA Group Limited took over the market. Other competitors include Hannaford Bros. Co., Safeway Plc and The Stop and Shop Companies, Inc.
PESTEL analysis of Sainsbury:
The political factors in the United Kingdom have a great influence on the performance of Sainsbury. Currently in UK, the government debts and the consumer debts are very high. This impacts the customer attitudes and therefore business conditions experience great pressure. Sainsbury has to not only operate in these market conditions but also has to develop their business continually. Although the political factors are not favorable, Sainsbury has been able to sustain a steady growth due to its long heritage of offering great product quality at competitive prices.
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Economic factors play a vital role in any industry. These factors affect demand, costs, prices and profitability. In the light of the economic slowdown, growing unemployment and inflation in food prices are the 2 important elements of economic factor that will affect Sainsbury significantly. As a result of rampant unemployment and high prices of food products, the demand for Sainsbury's products will decrease which in turn will decrease the production of food products. This will further increase the food prices and unemployment just like a viscous circle effect.
Sainsbury should contemplate on expansion into new emerging markets and therefore globalization of Sainsbury's operations will enable it to well-manage the risks associated with the economic slowdown.
In today's market, the customers tend to prefer one-stop shopping. This means that they prefer to have all the products available under one roof. Sainsbury by introducing non-food products have largely benefited from this strategy.
In addition other social factors such as increasing female workforce, longevity in the population, etc. has resulted in a decline domestic meal making. Therefore there is a growing demand pattern of a certain types of products. One of the marketing themes of Sainsbury being ‘Cook and Save' promotes easy to cook products thereby allowing the customers to make their household budgets stretch further.
The technological advancements have a positive impact on the business operations. There is a significant growth potential in the online or web based operations of the business. Online operations enable the organisation to expand their capacity in areas of growing demands.
Sainsbury's online food delivery service is increasingly expanding. As per their annual report for 2009, continuous improvement in the services offered online has resulted in increase of sales by 25% year after year. This online service is now available to 88% of the United Kingdom households.
There has been a great pressure on the organisations and management to act in a socially responsible manner to keep the environment safe. Organisations impact the environment in both direct and direct ways.
Sainsbury has taken an initiative in this area by championing in their ‘Reduce, Reuse, Recycle' approach that effectively manages waste, packaging and recycling. They are also working to reduce their operation carbon footprints.
The government legislation and policies have a direct impact on the performance of the organisation. For example the legislation that introduced a new tax on advertising highly processed and fatty foods. Sainsbury adapted to this new tax by modifying its products and also complied to the legislative requirements.
Porter's 5 forces analysis:
Michael Porter's 5 forces of analysis are referred as the assessment factors of an industry. These forces include:
Barriers of entry
Threats of substitutes
Power of buyers
Power of sellers
The market share of food market in the United Kingdom is concentrated. It is dominated by 4 major players namely Tesco Plc, Sainsbury, Safeway and ASDA with a combined market share of 70%.
As per the annual report of 2009, Sainsbury has a national market share of 16% and its web based shopping service captures 88% of UK households.
Tesco Plc and ASDA Group Limited are the 2 major competitors of Sainsbury in the United Kingdom. Sainsbury's competitors have certain competitive advantage such as focus on price and value and quality service.
The competitive advantage of Sainsbury has been increasing attention to quality within their own-brand products and competitive prices.
Barriers of entry
The food retail industry in the United Kingdom has significant barriers of entry.
As the target food market in the country is huge, the foremost issue for a new entrant is the large scale of investment required to enter and face the competition from established key players like Sainsbury, Tesco, Safeway, etc.
The established competitors not only pose tough competition to new entrants in terms of market share but also have their own branded products. A new entrant would have to invest substantial time and financial resources to develop and promote its branded products.
Threats of substitutes
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The threat of substitutes being available in UK's food market is not a dominant issue. Unlike other products, food products come under the category of necessity. Therefore the demand for food products is ever-growing as the market evolves.
Although there is an inherent internal threat such as a presence of another supermarket in the same demographic limits, the competitors are constantly bringing in innovative ideas and ways to make food shopping a pleasurable experience. A good example is the internet based shopping service provided by Sainsbury which allows 88% of the UK household customers to shop conveniently at the click of the mouse.
Power of buyers
In a competitive retail food market in the United Kingdom, the power of buyers plays a very significant role. The power of buyers can determine the prices of products, the market share allocation, customer loyalty, etc.
For instance if the price of milk which is a necessity product, is high in Safeway, the customers will switch to Sainsbury. As there are several supermarkets in the region, the bargaining power of the customers is very strong and the customer loyalty is very volatile.
Sainsbury should constantly assess its prices and benchmark it against the main competitor's prices in order to be competitive in the market.
Power of sellers
The power of sellers refers to the demand of the suppliers that the retailers and the supermarkets should pay a definite price for their goods. If the retailers are reluctant to pay the price demanded by the suppliers, the products will not available for resale. This in turn will affect their customer service as the retailers will not be well-equipped to provide a wide range of products to its customers.
Being a large chain of supermarkets and convenience stores, Sainsbury has an added advantage of determining the terms and prices of products from their suppliers. In addition Sainsbury has a large base of its own branded products therefore Sainsbury should focus on developing marketing strategies to expand their client base and demand for their own products.
2 marketing strategies and its impact on Sainsbury's long term growth
The 2 marketing strategy options available to Sainsbury Plc to achieve long term growth are as follows:
Marketing strategy 1 - Differentiation
This is a marketing technique used by an organisation to establish strong and unique identity in the industry. It is also called segmentation strategy. The purpose of the differentiation strategy is to enable the organisation to stand out from its competitors. Business differentiation and product differentiation are examples of differentiation strategies.
This strategy is used by many successful organisations. This strategy is called positioning. This is a strategy that sets a business apart from other businesses in the industry, market, geographical and demographic area.
In absence of business differentiation, all businesses selling the same products are competing against each other. Business differentiation is s strategy that develops a positive market perception of the business. It is essentially about what a client would say when asked “What's so special about the supermarket Sainsbury?”
Sainsbury should identify and develop the factors that differentiate them from others. These would include the following:
Reliability of customers on Sainsbury
Product differentiation is a strategy used by an organisation to introduce different varieties of the same product to cater to the different types of segments of the market.
In this strategy the base product is modified to suit the needs of the different segments of the market. An example of product differentiation is the variety of products made by Coca-Cola under the category of basic soda: Regular soda, Diet soda, Decaffeinated soda, Diet-decaffeinated soda, etc.
Sainsbury should not only develop a product range that is targeted for the different segments of the market but also undertake rigorous marketing techniques to market these products.
Marketing strategy 2 - Diversification
Diversification is a marketing strategy that aims at the organisation's growth. It refers to increasing profitability by increasing the sales volume obtained through establishing new products and through penetrating in new markets.
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Diversification strategies include development of new products in the current market, introducing current products in the international markets, acquisition of other organisations, alliance with other organisations, importing and selling products manufactured by other organisations, etc.
There are different types of diversification strategies 2 of which have been highlighted below:
Internal diversification strategies
Internal diversification strategies entail marketing existing products in new market or introducing new products in the existing markets. This can be achieved by reaching out to new customers in the new regions within the country or by globalizing the operations and reaching out to potential international customers. In addition it can also be achieved by marketing new products in the existing markets. An example of this would be Sainsbury adding low-sodium food products to its existing line of products.
External diversification strategies
An external diversification strategy refers to looking outside the current operations and buying access to new products and new markets. Merger and corporate takeovers are an example of external diversification strategies. In the 2009 annual report of Sainsbury, the company indicated its intention of acquiring 24 stores from the Co-operative group mainly in the West England, Wales and Scotland where Sainsbury is relatively less well represented.
Marketing strategies like differentiation and diversification will enable Sainsbury Plc to achieve long term growth. These strategies will not only establish Sainsbury as a leader in the retail food market but will enable the company to secure a leading position in the global market through globalization.
Current marketing mix of Sainsbury Plc
Marketing mix is a structure that identifies the principal decisions the marketing managers make to configure their marketing strategies in order to suit the needs of the customers.
The key elements of the marketing mix are as follows:
These key elements form a framework which is the principal basis of decision-making for marketing managers so that a favorable response is produced from the customers. Therefore the marketing mix is simply a suitable listing of interrelated decisions taken by the managers in an organisation.
An important objective of the marketing mix is to develop a sustainable competitive advantage for an organisation.
Marketing mix of Sainsbury Plc
As per the 2009 annual report of Sainsbury, their marketing campaign is centered on the following three themes:
Shop and save
Switch and save
Cook and save
Shop and save provides customers with competitive pricing and a range of promotions. Switch and save focuses on the quality and value of Sainsbury's own-brand products at significant lower prices compared to the equivalent leading brands. Cook and save helps its customers make their household budget stretch further.
Key element of Sainsbury's marketing mix and recommendations
Based on the above-stated marketing campaign of Sainsbury, it can be concluded that the key elements of their marketing mix are products and pricing.
A brand distinguishes the products and the company from the other competitive products and company.
Sainsbury provides own brand products which ranges three tiers defined as ‘good, better, best' which are offered via the ‘basics, standard Sainsbury, taste the difference' sub-brands.
In order to benefit more from the branding Sainsbury should implement the concept of product building by Philip Kotler.
A per Kotler's concept a product should be developed in 3 levels:
Level 1: Core product
Sainsbury should identify the core benefit or the core function of its product. For example the Sainsbury food products purchased by its customers are more than just a product; they represent good quality and healthy food.
Level 2: Actual product
All food products fill the customers. The objective of the marketing mix should be that the customers show a favorable response to Sainsbury's products by buying them. At this level Sainsbury should develop and promote its brand by adding features and benefits to ensure that their branded products offer competitive advantage to their customers.
Level 3: Augmented product
Sainsbury should contemplate on augmenting its branded products by adding non-tangible features and benefits to the after sales product. This would include after sales service, warranty, delivery, etc. An example would be money back policy on food products that do not meet the customers' standards or a warranty from Sainsbury on big ticket non-food items such as electronics.
Pricing is a key element of the marketing mix. A sound pricing policy guarantees profitability, customer demands, customer satisfaction, customer retention, etc. Therefore Sainsbury should review and modify its pricing policy taking into consideration a number of pricing strategies. Following are the 3 pricing strategies that we recommend to Sainsbury:
Penetrating pricing strategy
When Sainsbury enters a new market or a new territory, penetrating pricing strategy is highly recommended. Under this strategy the prices are reduced to increase the sales volume and capture the maximum share in the new market. This will encourage the potential customers to switch to the products of Sainsbury.
Product line pricing
This pricing strategy sets up different prices for different products within the same product base depending on the features and benefits of the products. Sainsbury is following this policy where it has different price points for the good, better and best sub-brands. It is highly recommended that Sainsbury should implement this strategy more rigorously as this will maximise its sales volume and profits.
Last but not the least; Sainsbury should continually follow the price fluctuations of the similar products offered by its competitors. In order to be a leader in the industry, Sainsbury's product prices should not only be very competitive and not just comparable.
Sainsbury can benefit from the above-stated marketing mix by developing the key elements of product and pricing and thereby enhancing its goals and values.
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