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Its Uk Health And Beauty Operation Marketing Essay

4559 words (18 pages) Essay in Marketing

5/12/16 Marketing Reference this

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The purpose of this report is to analyze boots competitive advantage on it rivals including the impact of the new information Technology/information Systems on boots. The first method use to analyze the companies competitive advantage is SWOT analysis by Michael Porter. SWOT means strength, weakness opportunity and threat. This report will analyze the strength of boots over it competitors, including it weakness, opportunity and threat.

The second method use to analyses boots companies competitive advantage is Michael Porter’s five forces model. These forces include bargain power of supplier, bargain power of customer, rivalry among competitors, threat of substitution, and threat of new entry. All aspect of the five forces will be use to test the competitiveness of boots against its rivals.

The next section will involve value chain analysis, which is useful to separate the business system into series of value-generated activities. This method will be use to conduct a step-by-step analysis of the impact of the new system on the culture and productivity of boots.

The forth section will be either to corroborate or falsify whether the new system has made a great impact on the new system.

Boots is the market leading company in different areas of its business including toiletries, baby consumables, healthcare, cosmetic etc.

Boots has made tremendous effort in increasing it productivity and profit margin by creating the advantage card and a well design database system to improve it competitiveness.

Boot had far less customer before the introduction of the advantage card and that number has increase rapidly because of the offers and opportunities, which are open to customers. For every item a customer buys, they get points added to their card which can be use to purchase item in the future. Boots has design a database system to store cardholder and non-cardholder details, which can be use in decision-making.


Boots has had an illustrious history. From its beginnings in 1849 as an herbalist shop, Boots has continually developed new product ranges, many of which are now household names in their own right. By the 1930s, Boots had more than 1,000 stores selling a wide range of products, including its new cosmetic range, No7. Expansion overseas began as early as 1936 with a store in New Zealand.

Following World War II, Boots continued to grow, expanding its manufacturing and research capabilities, including an agricultural division. The creation of the National Health Service in 1948 led to a vast increase in dispensing, which Boots embraced. Over the years Boots has successfully introduced brands such as 17 cosmetics, aimed at teenagers, which was introduced in 1968 and new business ventures such as Boots Opticians — now a major division of the business.

In 1985 the Research Department received the Queen’s Award for Technological Achievement for the discovery and development of ibuprofen. The analgesic ibuprofen was introduced in 1969 as a prescription drug, but launched as the over the counter brand, Nurofen, in 1983.

Boots Internet business has become increasingly important in the new millennium and a successful part of the brand. Improvements have been made to the online customer experience making navigation easier, resulting in sales becoming bigger than those of the largest Boots store.[z]

Boots is one of the United Kingdom best-known retailers, dispensing prescription and over-the-counter medicines as well as a wide range of cosmetics, personal care products and low-cost white goods. [4]

It is a wealthy value chain company with a wide scope for development within the United Kingdom including Europe and possibly the world. Boots maintains its strengths in its corporate culture with a well-established customer base and a keen watch on the industry. The Boots Group has many opportunities open to it because there is constant annual growth in the health care sector in the United Kingdom.

Boots uses and continues to use its resources to preserve and grow its market share, and aims to satisfy every customer that enters any one of its 1400 stores or logs on to its online shopping webpage. It also seeks to increase its annual sales by 10% by repositioning its corporate status as a customer oriented value chain, where customers can feel at home, have access to thousands of products and expertise healthcare advice under one roof. When customers leave Boots they don’t only leave with pharmaceutical products and medications but they leave with a whole other shopping experience. [5]

Boots trading in the six months to September, had been in line with its expectations and that it is on track to deliver its profit and cash flow goals for 2008/09.

The group’s health and beauty division increased like-for-like sales by 3.5 per cent to £3.37 billion. The wholesale pharmaceuticals division was the group’s best-performing section, with revenues up 17. 3 per cent, over the first half of last year to £5.32 billion.

Total revenues in the UK increased 1.8 per cent on a like-for-like basis, with its UK health and beauty operation, which largely consists of the Boots pharmacy chain, reporting sales up 0.5 per cent.[p]



Since the mid-1990s, Boots has faced increased competition from virtually all parts of the marketplace. It has responded by merger, takeover, re-organisation, new investment and restructuring. Its success will depend on its own actions but also on the extent to which its competitors manage to take market share from them. This business profile update sets the scene for the battles to come. It has been produced with the kind assistance of Amy Silverston, freelance marketing researcher.

In October 2005, Boots announced a £7bn merger with its rival Alliance Unichem. This deal made Alliance Boots a major global player in the distribution of pharmaceutical and healthcare products. It also gave the Boots brand a greater profile in continental Europe. At the time of the merger, Boots owned 1,400 pharmacies in the UK, employing 68,000 staff, while Alliance Unichem had 1,200 outlets in the UK, the Netherlands, Italy, Switzerland and Norway, with 33,000 employees.

Until Alliance Boots was formed, analysts and investors had become increasingly dissatisfied with Boots’ attempts to fend off competition from the grocery retailers, independents and niche operators in its key markets. In the 18 months to the merger being announced, the firm issued three separate profit warnings. Boots’ ventures into new fields such as laser eye surgery, dentistry and chiropody had not been successful.[d]

Boots has a very large and strong customer base over a very long period and this has created a brand equity, which very few companies can match. It has a very large financial backing. Boots now knows who its best customers are and will be able to target the right set of age group with certain set of product, but more importantly for the company’s growing team of analysts and marketers, information on purchasing patterns is now driving strategic change within the organization as it moves from the traditional product category focus to a customer cantered view.

Boots Advantage card: Boots advantage card has help the company to gain plenty customers and it is regarded as the most successful loyalty card in Britain. Since its launch in 1997, Boots has invested £20m in the scheme and signed up 13m active customers. About £140m worth of products was redeemed with the card in the UK last year.[6]

It helps customers save money by acquiring point when they shop at boots. These points can be used to purchase items in the future especially when you don’t have enough money to buy an item.

The creation of a database into the system is an added advantage against competitors. The advantage card information is stored in the database, which can be used as an added advantage when the detail stored in the database can be extracted as to what customers want and work to achieve this. The use of information technology to monitor a businesses performance can also enable the business to highlight areas where they are not making the most use of their resources. The use of information technologies can also increase the businesses income through advertising in the various available forums.[6a]

A database system must be fast enough to retrieve information despite the volume of information it contains. Boots has over come this problem by creating a well-managed database system.

Boots has employed twenty-three full time analysts added to its previous marketing staff to monitor customer behaviour. From the article it also states that ” An analysis of how Boots’ customers shop a group of stores in a particular geographical area has led to a greatly improved understanding of the role different stores play within that area and the repertoire of goods that should be offered across the stores. For example, Boots stores have typically been grouped and merchandized according to their physical size. This leads to large stores competing with smaller stores for trade in the same area. ‘We quickly learned that our most valuable customers shop across many stores in their area’ says Helen, ‘and that there is a lot to be gained by managing stores as local areas and focusing on getting the overall customer offer right”.[article]

This is an advantage for boots because it understands how customers shop between stores in a particular area and how different stores play within that area and the type of goods that should be offered across the store.

The article states that, the close integration of the campaign management system within the analytic environment of Customer Data Analysis System (CDAS) is one of its main strength. It has created a system for boots were by the right customers will be targeted for promotional purpose.


It offers a very wide range of products and services through its stores. This is an undoubted strength for the company, but also a source of potential weakness as one may ask, what dose boots actually sell. Boots would not be able to provide a better service on in groceries than Tesco can, as they specialize in this area.

The advantage card has contributed to the success of boots but it can also be a weakness, which can affect the company. The data received on the advantage card is use to track customers shopping habit and some may view this as invasion of privacy. The advantage card does not offer points on all items you buy in boots store and therefore not all customers can benefit on the advantage card.

Boots website does not allow customers to redeem their points online and will miss out on savings. This will force customers to buy from another retailer and similar point does not work in boots optician.

Other customers may feel very loyal to the store and which does not normally offer the lowest price.


Merging or forming a strategic alliance with another company is a great way to improve their services and overcome some of their weaknesses.

Following the creation of Alliance Boots, the next big change came in June 2007, when private equity firm bought the company, Kohlberg Kravis Roberts (KKR). The deal with the US firm went through one month before the first effects of the credit crunch were felt. KKR paid £11.1bn for Boots, which at the time of acquisition was £9bn in debt. Change of ownership at Alliance Boots also meant change of management, with the removal of the company’s chief executive and managing director. KKR installed three of their own people onto the board. The effects of the changed ownership were felt almost immediately in terms of financial performance, were earnings went up by 17% in 2007-2008, trading went up by 20% to £854million and revenue went 6% to £17.8 billion.[c]

Boots will be able to share the resources and capabilities, and gain the expertise of a specialized company, enabling Boots to improve in its weaker areas. Boots will also have extended distribution channels and greater access to its customers.


The most obvious and perhaps serious threat to Boots is posed by the march of the supermarket retailers into the non-food shopping sector. A report on 2008 Verdict research, published on utalkmarketing indicated that in the last few years far more shoppers have started to use supermarkets to buy non-food items. This report shows the extent to which the supermarkets have tightened their grip on the £177bn UK non-food market of which they now take a share of £19.7bn or 11%.[b]

Boots will face more threat because supermarket will be able to offer competitive prices, non-food products for people who are buying food product.

Being one of the largest pharmacy chains means that Boots is the target of competition. Also there is a Growing public concern and annoyance that Boots’ is threatening the smaller retailer. The smaller shops are disappearing due to the growth of the pharmacies and this is annoying some people. So there is a social and legal implication as well. Another possible threat is if Superdrug were to start a price war, although they are nearly half the size of Boots’ they have a larger financial backing from its parent company in Asia making them yet still a major player in the industry


Michael E. Porter developed the model of the Five Competitive Forces in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes.  

Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change.

Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.[8]

The five forces include

Boots competitive bargaining power to suppliers

Boots is a well-established company in the United Kingdom and therefore must have some form of power over it suppliers. In the line of business it offers, there are few competitors and the only well known rival of boots is super drug. Small companies will not be able to influence the supplier’s price. For instance you will have little bargain power with Tesco, one of the United Kingdom biggest retailers.

Forming partnership or good relationship with your supplies can cause even distribution of power. In the boots case study, it explains how boots has been a long established customer to IBM and trigger boots in handing the contract for building the new system to IBM.

Boots competitive Bargain power to customer

Boots have huge number of customers and this can be good for the company because it helps to increase profit. Boots will be able to manipulate price and customer will not be able to influence the changes in price. From the boots case study, boots had 10 million customers in 1998 due to the advantage card scheme. At present this number will have tripled putting boots in a comfortable position.

But having said that, boot will not be able to control the market for a very long time because it rivals are picking up very fast and they are offer almost all what boots is offering and boots in return does not sell groceries.

Customers are unable to play boots with it rivals because of it dominating power it has over rivals, it this might likely change in the future.

Boots Rivalry among competitors

Apart from super drug, which is second to boots in terms of customers and profits, there is no other big rival to boot in the United Kingdom in other wards boots rivalry is at it minimal with competitors. It states in the case study that toiletries and over the counter pharmacy market is very competitive but these goods are costly in boots store and this is due to weak rivalry.

Boots Threat of substitution

Boots has put in plenty effort in making sure their product is different and unique. This can prevent customers look for substitute because the quality is different. For instance Primark’s jumper will be of lesser quality to Armani exchange jumper. Although supermarket are trying had to catch up with boots, it will be very difficult for any chance of substitution because of customer loyalty.

Some supermarkets have gone to extent of having there own in store pharmacy and offer after hours doctors.

Boots advantage card scheme can make life easy for some customer and offer some amount of uniqueness because it put money back in their pockets, it brings boots closer to it customer. This can retain customers as to substituting to a company with no advantage card.

Threat of new entry

It will be very difficult for new entry into the boots line of business because of customer loyalty. New companies will have to build their customers from scratch and old companies like boots will be concentrating on creating stiff completion for competitor for instance price reduction.

But other big companies already established might not really struggle to get customers. Example will be Tesco’s. Previous Tesco customers will prefer to buy old and new product in Tesco store.

3) Investigative the impact of the new IT/IS system on the culture and productivity of the organization

The value chain analysis will be used to analyze the impact of the new information technology and information system on the culture and productivity of the organization.

To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generated activities referred to as the value chain.[d]

It also seek to understand cost and areas of existing and potential differentiation.

Looking at the inbound logistics, Boots has been at the forefront of developing and manufacturing health and beauty products for over 100 years.

Boots manufacturing has been producing high quality health and beauty products at its United Kingdom manufacturing plant since 1935. During this time Boots has created many famous Boots brands both in the UK and in international markets. These include number seven and seventeen colour cosmetics, the Soltan suncare range, Natural collection and Botanics.

Our manufacturing facilities include three manufacturing sites and one assembly plant across Europe.

We manufacture and develop a wide range of high quality products for group and non-group customers, produce over 5,000 different products and manufacture over 350 million units every year.[n]

The advantages for boots in manufacture their own goods are that it gives them complete control.

Looking at operation technology, it is the processes of transforming inputs into finish products and services. , Boots has made improvement through operational technology. Boots advantage card is an important value added to the organization because it put money in the pockets of the customer.

By analyzing the information provided through the Advantage Card, Boots gained meaningful insights into its customers shopping behavior. It found that Advantage cardholders shop more frequently than non-cardholders, and on average spend 50% more than non-cardholders.[c]

It a clever marketing technique that works for both the company and the customer. It works for he company because it creates customer loyalty, because one may notice that boots is not the cheapest store that sell toiletries, but the thought of the points on the card can make encourage customer to stay with boots.

Through the advantage card, boots is able to monitor the marketing activities on customers such as the impact of promotional offers on buying patterns over time. They can make a valuable input to decisions about layout, ranging and promotions by using market basket analysis to provide insight into the product purchasing repertoires of different groups of customers.[article]

Boots as a company has made enormous improvement on information technology in order to maximize profit and improve customer satisfaction. Operation technology is very important in improving the overall reputation of boots because it is important in delivering value, quality and trust for customers.

For the advantages card to work effectively, boots has increased the size of its database, which will hold vital information about customer behavior. IBM was contracted to update the system to improve the value added to the company through operational technology. The system will be able to accommodate more customer information and retrieving information from the database, which was explained, on the article.

Boots has also made use of the outbound logistics, which is a process involving collection and distribution of finished goods.

Boots engages in the manufacture, distribution, and retail of healthcare, pharmaceutical, and consumer products worldwide. It provides medicines, toiletries, skincare products, cosmetics, fragrance, baby, nutrition, and photoproducts, as well as pharmacy and dispensing services. The company also offers opticians’ services and sells glasses and contact lenses. It distributes medicines and other healthcare products to approximately 125,000 pharmacies, hospitals, and health centers in 14 countries through approximately 380 depots. The company operates approximately 3,000 retail outlets, including 2,700 pharmacies. [f]

Outbound logistics is important for the overall image of boots as it offers commitment to continue delivering quality, value and trust to its customers.

Boots has improved it outbound logistic by introducing its stock planning systems to ensure goods are replaced before they run out.

Marketing and sales is one of the most important value aspects of boots. The information stored in the database will be used to inform potential customers of the products and service on offer and it will also be used to manufacture the right product.

Boots has made a feature of multi-buy promotional schemes in recent years with numerous three for the price of two and even for the price of one offers. This method can attract customers and improve it value chain. The outbound logistics method use by Boot will not be possible without the use of advantage card technology.

Boots has employed twenty-three full time analysts added to its previous marketing staff to monitor customer behaviors. The information, which they have gathered from the advantage card, is to monitor the behavior of customer. Certain information have being use by the marketing staff to target certain age group. The analyst also monitor purchases over time, which fuel further marketing effort.

In order for information technology to make great impact on the culture and productivity of an organization, well-trained staff must maintain it throughout. From the case study, it shows that boots has employed twenty-three full time analysts to monitor customer behavior over time. When an organization recognizes the value their staff contributes to the organization then it can improve it value chain.

The final primary activity is that of service. Boot make sure customers are happy with the product they buy. They can return the product if they are unhappy and a full refund is available or a customer can get another product they prefer.

4) Identify evidence that corroborates, or falsifies, the claim that the new system has delivered value and provided the organization competitive advantage that Boot’s management were seeking?

The evidence that will be presented will corroborates the claim that the new system has delivered valve and provided the organization competitive advantage.

From the case study, the new system has delivered value and provided the organization competitive advantage that boot’s management were seeking.

Information technology has dramatically changed the business sectors in boots stores. Looking at the advantage card system, which was first introduced nationally in September 1997, it has increased boots profit margin tremendously. The information stored on the advantage card provides vital information for analysts when making important decisions. Information technology has help Boots Advantage Card which has become the largest smart card retail loyalty card scheme in the world.

It is also the third-largest retail loyalty scheme in the U.K. in terms of cards issued. The Advantage scheme currently has 12.3 million cardholders, and more than 40% of transactions in-store are now linked to the card. [c]

By analyzing the information provided through the Advantage Card, Boots gained meaningful insights into its customers’ shopping behavior. From the information on the Advantage card, card holders shop more frequently than non-cardholders, and on average spend 50% more than non-cardholders.[r]

All this success has come with the help of technology and although it may have cost boots a fortune in creating the advantage card system, but it has given them a competitive advantage.

Boots also created a database system which started in spring 1997 although it went well but according to the article, it is very much state of the art technology and was a lot more painful at times than the boots had expected. But this has created more customers for boots and a platform for strong competition.

The database is used to store cardholder’s information and non-cardholder’s sale records, which provide a comparison to cardholder behavior. The article shows that there are different groups of promotional buyers who shop only when there is an offer. This information can create an advantage for boots because it shows whether boots is attracting new long-term business or just generating short-term business. Some customers only buy products at a certain time and boots is making effort to encourage customers to buy its product all year round.

















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