Marketing theories and concepts applied to Waitrose

In this report firstly I aim to examine different theories within marketing, secondly I would be critically analysing the common characteristics of a marketing oriented organisations. Moving on from there I would be explaining various elements of marketing concepts using my research I carried out on Waitrose and would be evaluating and comparing the costs and benefits of marketing approach for today’s business.

Furthering in this report I would be explaining how tools of macro and micro concepts would help in decision making within marketing using Waitrose as my example. Then I would be looking into the significance of segmentation and factors influencing during the choice of targeting strategy. To summarise this section, I would be looking into how buyer’s behaviour affects any marketing activities in an organisation in two different situations.

Finally, I would be examining how product development helps Waitrose in sustaining a competitive advantage over their competitors and how are their distribution channels they have in place for their customers proving convenient for their customers and how it helps the business in return.

Defining marketing

There are many definitions of marketing which generally revolve around the primacy of customers as part of an exchange process.  Customer’s needs are the starting point for all marketing activity.  Marketing managers try to identify these needs and develop products which will satisfy customer’s needs through an exchange process.  As a business philosophy, marketing puts customers at the centre of all the organisations considerations.  This is reflected in basic values such as the requirement to understand and respond to customer needs and the necessity to search constantly for new market opportunities. 

Marketing means more than one thing. Many Marketing experts have many definitions of marketing, but most of them are based around different ideas of marketing. If you look at these two expert definitions of marketing, they are based on the idea of marketing being a range of activities.

Kotler defines marketing as “a social and managerial process by which individuals and groups obtain what they want and need through creating, offering, and exchanging products of value with others.” his view on marketing looks at marketing being more of an exchange process. [Kotler, 1991]

Chartered Institute of Marketing defines it as the management process responsible for identifying, anticipating and satisfying customer’s requirements profitably.

However, there exist numerous definitions of marketing; it is always about “meeting existing needs and anticipating future needs” [Bagozzi, 1975].

In Elements of marketing, Prentice Hall, 1975;”Marketing is all those activities involved in getting goods from producers to users, including buying, selling, storing, transporting, advertising, and promoting the goods” [Bagozzi, 1975].

Another view explains marketing as being more of a process of goods or services getting it from the supplier to the customer. This definition is based on that idea. “Marketing is the performance of business activities that direct the flow of goods and services from producers to customers.” [C E Merril. 1982]

Now after the definition of marketing, it is important to understand the marketing concept. This concept holds to achieve organizational goals depends on the needs and wants of the target market and delivering the desired satisfactions more effectively and efficiently than competitors.

To illustrate the marketing concept Peter Drucker said: “if we want to know what business is we must first start with its purpose…There is only one valid definition of business purpose: to create a customer. What business thinks it produces is not of first importance. What the customer thinks he/she is buying, what he/she considers “value” is decisive-it determines what a business is, what it produces, and whether it will prosper?” [Peter Drucker, 1954]

Common characteristics of marketing oriented organisations

The major feature of the marketing oriented organization is that they are aimed to stay closer to the customers and ahead of their competitors. The reason is that the basic aim of these organizations is to attract the customers. There are four major characteristics which define the marketing oriented organizations including,

Shared Values,

Organization,

Strategy,

Customers.

Firstly, all decisions of these companies consider the customers first and they share the common value of superior quality of products. Secondly, their organizational structure has very few layers and their policies are not very difficult. Thirdly, the strategy of a market oriented organization is long term, flexible and participative. Finally, they consider the expectations of the stakeholders before making any important decision.

The Marketing Concept and the Mix

The marketing concept is a kind of recipe how a company can achieve its goals by understanding the exchange partners and associated costs, being a response to external opportunities and threats and to internal strengths and weaknesses as a means of competitive advantage (Houston, 1986).

Bagozzi (1975) underpins this viewpoint, arguing that marketing is much about the exchange paradigm which focuses on the question why parties take part in exchanges and how these work.  The marketing mix is the organization’s overall offer or value to the customer.  The ‘Marketing Mix’ is a term used to describe the combination of tactics used by a business to achieve its objectives by marketing its products or services effectively to a particular target customer group.  Businesses need to make sure they are marketing:

“The right product, to the right person, at the right price, at the right place and at the right time.”

The aim of doing this is to gain a competitive advantage and thus to outperform competitors. (De Wit and Meyer, 1998)

The concept of marketing mix and 4Ps was introduced in 1965.It has become the basic model of marketing and has been unchallenged since then. It is defined as the set of controllable tactical marketing tools that the firm blends to produce the response it wants in the target market.  The marketing mix consists of everything the firm can do to influence the demand for its product. It is considered that a common model for achieving this is the 4-P framework as put forward by Kotler and Levy (1969). Lauterborn (1990) proposed that there were twelve dimensions of marketing, however, McCarthy reduced the model so that it became known as the 4Ps: Product, Place, Price and Promotion.

Waitrose’s Marketing Mix

There are many factors that encourage Waitrose to vary its product mix, promotional offers pricing from store to store as place (location) is also very important to Waitrose. .

Price 

Although Waitrose tries to operate a uniform national price list (all products sold at identical prices) it does admit to some price flexing to keep in line with its competitors. A variation of prices between stores can be in response to the size of the store, position of a store, regional incomes, and customer preferences, which can all have major affects. To illustrate the picture, a Waitrose store situated in the centre of London may have higher prices compared to a Waitrose store out of town in Surrey. This can be due to the high operating costs of trading within the city centre. Transport costs can also have an affect on prices especially to stores situated in London, as they will now experience the cost of the congestion charge, resulting in an increase in the cost of delivering stock. Also stores may face higher costs because they are remotely located. Yet stores that have a local monopoly, because no alternative shop is located within reasonable travelling distance, Waitrose may decide to exploit this by setting high prices. On the other hand, fierce competition will see low prices to attract the consumer who would have a choice in this case.

Regional incomes and customer preferences can also have an effect on prices as certain areas may have lower incomes so prices of certain products may have to be decreased to meet the wealth of certain areas. All these factors have to be considered when Waitrose prices it products. Overall prices within

Waitrose tend not to vary as most stores are situated in the south of England so incomes and operating costs are fairly similar.

Product

Product mix may differ from area to area because of varying consumer tastes. For example, the Canary Wharf store is tailored to meet the needs of its affluent customer base as they offer designer breads, a sushi bar, a wine bar, a steak and oyster bar, and an exclusive wine cellar offering vintage wines.

Product mix may also vary in relation to what Waitrose’s competitors are doing, as Waitrose may feel they have to supply certain products just to keep up to date and in competition with its competitors.

Additionally, Waitrose’s product mix may vary due to the size of the store and the space allocation of products. Waitrose may choose to supply certain products in certain areas as they are good sellers and so the bigger store the more they may sell. Sales data is a good way of identifying where certain products should be situated between branches and a process of achieving sales data is by the use of electronic data interchange (EDI). Varying the product mix is part of an efficient consumer response system (ECR). By focusing on the efficiency of the supply system and thereby reducing cost enables Waitrose to offer products tailored to a region.

A major advantage of own brands is their extremely short maturity process. Since own brands are commonly exact imitates of branded manufacturer’s products. They benefit from this, by being immediately familiar with the customer.

Most popular own brand products are those that show little difference to branded products, so-called inferior goods, where there is little room for differentiation.

Retailers have the advantage of tracking market needs fast and react to the change in social life style (take away, healthy eating, alternatives food, exotic, ethnic foods) that encourage expanding in new own brand categories. ‘The retailers have often been quicker than the major branded producers to respond to consumers tastes, as it tends to be easier and quicker to alter lower volume, private label products specifications than higher volume manufacturer branded products.

Promotion

Promotional offers may be carried out within certain stores to help grow specific lines which do not sell well, in hope of increasing sales, and matching sales targets of other stores, while encouraging shoppers to increase their spend within the store. Another reason for promotional offers to contrast between stores is so that they can compete against their local competitors offers in aim of keeping and gaining (counter competitor activity). A new store may also have promotional offers running at different times to other stores a means of winning customers, and increasing awareness of the new store. Different levels of store traffic can also have an effect on promotional offers, as stores with low traffic may carry out promotional offers in an attempt to increase the number of people visiting the store. An alternative motive for the variation in promotional offers between stores can be to stimulate customers switching to own brand products, as certain stores may have low own brand sales.

Place

Waitrose is located mainly in the south east of the UK with stores only as far north as Newark. The typical Waitrose Store is located in town centres next to other major shopping facilities. The average Selling Space of a Waitrose Store is under 1500 sq meter, which is fairly small. However newly opened stores tend to be of at least 2000 sq meters and preferably 2500 sq metres. With the introduction of its ‘food & home’ store format, Waitrose has also started to build in out of town locations, however, this account for only a very small share.

Costs and benefits of marketing approach

The principal benefit of marketing is that it enables companies to maximise their potential and reach the right customers at the right time. But any organisation should weigh up the costs approaching marketing. Every project is different and could end up with the costs mentioned below,

Setting marketing focus structure

Initial product development

Building excellent services

Attracting attentions of customers

Building long-time relationships with:

+customers

+suppliers

+distributors

customer retention

A proper approach to marketing involves understanding the customer and his or her needs: identifying the real needs of the market. And the below benefits are more likely to happen;

Profits

Customer loyalty and trust

Long term goal

Reputation

PEST Analysis

PEST Analysis is used to finding out if the market is in growth or decline, or has potential and the direction of the business. PEST analysis is manly used for measurement implement.

External factors usually are beyond the firm’s control and many of different times can cause problem and treats for a business, but external environment also creates new opportunities, this is different for each country because they have different rules and guidelines.

Pest analysis can be used for market and business development and decision making.  

Waitrose PEST Analysis

Political:

The Government remains firmly committed to the objectives of PPG6, which seeks to sustain and enhance the vitality and viability of our existing city, town, district and local centres and to make them the focus for retail investment …means that it is very difficult to get planning permission for out-of-town stores. ‘The Competition Commission’s report “The Supply of Groceries from Multiple Stores in the United Kingdom”, published in 2000, stated that the leading supermarkets do not operate as a cartel to keep food prices unduly high.’ (Key Note, 2001, Supermarket Services) Although some questionable practices were found (selling product at a loss, lower prices in areas of high competition), the Commission did not recommend any corrective actions.

EU Competition might not be as generous as the Competition Commission and therefore might order changes. If the introduction of the congestion charge is successful in London, it is likely that this kind of scheme will be extended to other big cities.

Economic

The takeover of Safeway by Morrison is an indicator that competition is getting more intense with fewer but bigger players.

Social

Demand for organic and healthy foods has increased and most retailers have responded to that trend. Today customers are less prepared to pay a premium price for organic foods, which is why retail chains have started to offer own brand organic products. Waitrose has long been offering these kinds of products. Busier lifestyles increased the demand for convenient foods/ ready meals. Also notable is an increasing demand for exotic and ethnic foods from consumers.

The public has become more environmentally aware and Waitrose’s strategy fits well into this

Almost 70% of women are working and working times are longer than in any other European Country. However, women are still doing the majority of the shopping.

More than 75% of shopping trips are made by car. Public transport links are even declining as a percentage.

Technological

Online shopping is a major new opportunity for retailers and the UK offers a good market for this with the highest percentage of people online across the EU. And ‘already more British food shoppers have converted to online grocery shopping than in any other country’ (Keynote, 2001, The Internet Grocery Market) Tesco is now the world’s biggest Internet grocer.

Information technology and Communication has enabled more sophisticated store management, with detailed statistics of products sold being made available, thus facilitating the ordering of new stocks. More attributes of the store can be steered centrally such that costs are reduced, margins increased and sales enhanced.

Stakeholders of Waitrose and their influence in marketing.

A stakeholder is a person who interests a business. The stakeholders in Waitrose are:

Customers: without customers Waitrose would not survive. Sales provide revenue.

Employees: Waitrose has many employees in all aspects of their business.                

Owners and shareholders: Waitrose have people that own parts of the company and get a part of profit. If they invested money successfully then they will make money for Waitrose. But if it is not, they will lose money.

The local community: their interest in business activities and operations that could result in damage to the local environment such as the building of housing on green-field sites.

Pressure groups: their main concern is the products that Waitrose are selling. 

Suppliers: Suppliers selling their goods to Waitrose.

Financial: Waitrose would not survive without money. Waitrose loan money from e.g. bank.

Stakeholders within Waitrose have different interests in the business like,

Customers have an interest in the production and services that Waitrose provide. The range of goods or services offered in the Waitrose. Also the price of these and the quality, and the range of additional facilities and services such as free home delivery. The customers also have interest on the attitude of staff and the overall performance of the organisation in this case Waitrose.

The Employees have an interest in success of Waitrose as this can affect their wages and long-term employees with the company. Also employees have an interest on the way which they are treated e.g. they want be treated fairly and to do interesting work. They want to be paid a fair rate in relation to other people worked in Waitrose with the same qualifications and experience. They have interest in receiving sick pay and holiday pay.

Owners and shareholders have interest in the amount of profit that is made. How much money Waitrose has invested? All shareholders have one vote for each share. Large institutional shareholders like Waitrose may hold several hundred thousand shares and they can use their votes to influence the way company is run. Also they have interest on the health and safety of customers and employees.

The local community has an interest in many of the business activities taking place in an area. E.g. residents of a large housing state might welcome a supermarket opening the edge of their estate but be concentrated but the number of Lorries making late deliveries to the store. Also local community may be concentrated about business activities and operations that could result in damage to the local environment.

·    The government have interest on employment of people, more taxes off Waitrose. They want employ the people that could be the best for customers. Government is also interested in business for political reasons. The government want to retain power aim to be re-elected. If the economy is healthy, then the government receives more money.

Pressure groups have interest in what kind of products Waitrose are selling and if they harm the environment or have been animal tested. There are thousands of pressure groups in Britain including: trade unions and the TUC, most charities e.g. Amnesty International, many famous environmental groups such as Greenpeace. The interests of a specific pressure group will depend upon who it represents. For example The TUC and trade unions represent the views of employees and campaign on issues such as health and safety.

·     Suppliers have interest on in selling their goods to Waitrose for a fair price. To be successful themselves, they need to keep receiving orders from buyers. Some suppliers dislike being dependent on business buyers so they extend their operations to sell direct to the final consumer for example, many breweries own their own pubs and restaurants and petrol companies have their own petrol stations. Equally some business do not like being dependent on suppliers.

Financiers have interest in putting money into a business like Waitrose. If a grant has been provided, there will be checks ensure the money is used as agreed. If the financier has provided a loan, the business must honour its repayment commitments.

Porters Five Force Analysis for Waitrose

This is a means of identifying the forces which affect the level of competition in the retail industry.

Threat of New Entrants

Economies of scale in terms of square footage of shopping area and breadth of distribution channels are all critical factors in the U.K market. Larger stores can stock and sell many more products faster which is consistent with both their customers and suppliers preferences.

Brand loyalty of customers in the sector is relatively high in that existing players have built a certain amount of goodwill with customers through loyalty and “own branded” credit cards.

Scarcity of suitable real estate for shopping centres consequent to the absorption by the existing players as well as government legislation placing strictures on further out of town development.

New entrants have limited access to U.K distribution channels as these channels are controlled by existing players. Access is typically being gained through mergers and acquisitions.

There are very low switching costs to customers in the market and so market share can typically be gained by leveraging price and product range variables.  

Existing players have accrued cost advantages due to experience curve effects of operation with fully depreciated assets.

 Power of the Supplier

Supplier power tends to be relatively low for the most part in the U.K market as there are a small number of significant operators in the market. However in certain segments of the market for example washing powder where Procter and Gamble and Unilever enjoy a virtual duopoly.

As “own brands” are emerging as a growing segment of the goods portfolio of large grocery multiples due to the higher margins available, even large suppliers manufacturers such as Unilever, Nestle, PepsiCo have been increasingly producing  for own labels despite potential competition to their own brands. Some however such as Kellogg’s, Coca Cola and Gillette do not agree to such arrangements as they consider it prejudicial to their quality reputation.

Power of the Buyer

Buyer power is particularly strong in the U.K grocery retailing industry where there is an extremely high concentration of buyers. Tesco, Sainsbury and Asda dominate the market.

For smaller retailers joining a buying group is an important element of survival and give members’ enhanced economies of scale in purchasing. These groups however play only a small and declining role in the market since they do not buy on the scale of the large supermarkets and also cannot guarantee sizeable shelf space to major suppliers. Consequently they obtain lower discounts than the major chains.

Wholesaling and distribution have been internalised and the retailer controls them directly.

The cost of switching suppliers in the U.K market is very low and involves negligible risk.

 Threat of substitutes

Though Tesco has successfully improved its margins by increasing the ratio of non-food to food in its superstores it has moved into other competitive arenas e.g. its foray into furniture and household appliances has put it on a collision course with household appliance retailers like Curry’s and Argos.

Changes in public consumption; e.g. the loss of confidence in British beef during the B.S.E beef crises of 2001 or fear of the long term implications of consuming genetically modified foods.

Competitive rivalry

Four major firms dominate the U.K market at present but concentration has increased markedly in the 1993-1996 period with major multiples pursuing active policies of new store development. Over this period Tesco has overtaken Sainsbury to become the market leader while Asda has since being newly acquired by Wal-Mart been threatening to take Sainsbury’s slot.

There is no genuine differentiation between products therefore the principal rivalry tends to revolve around pricing and perceived value for money. Own-Label is increasingly becoming an important differentiator.

Information Technology offers modern retailers the potential to speed up stock replenishment while reducing the cost of distributing products as well as strengthening links between the retail chains and their customers. Players which are most innovative in adapting technologies for these purposes tend to have a decisive advantage in the market.

Strategies of the larger players are fairly similar in that larger players typically employ growth by international acquisition in emerging markets and by increasing their exposure to the non – food segment of the market. Players in the lower echelon such as Sainsbury’s have since embarked upon a strategy of consolidation around a core business of food while maintaining a presence in the international arena.

Other Global competitors such as Carrefour/Promodes just across the channel may gain entry positions to the U.K market by way of acquisition of weaker companies.

Segmentation

Undifferentiated marketing assumes everyone is the same and aims a particular product at everyone.

Advantages: easy to plan, doesn’t miss anyone.

Disadvantages: can be wasteful, ignores segmentation, can lead to disappointing sales.

This applies to market coverage strategy whereby a company ignores differences within a market and attempts to appeal to the whole market with a single basic product line and marketing strategy. Undifferentiated marketing relies on mass distribution and mass advertising, aiming to give the product a superior image in the minds of consumers. It is cost effective because there is only one product line to be produced, inventoried, distributed, and advertised. Also the absence of segmented market research lowers the costs of consumer research and product management.

Concentrated Marketing:  This is where an organisation concentrates its marketing effort on one particular segment. The firm will develop a product that caters for the needs of that particular group. For example Rolls Royce cars aim its vehicles at the premium segment, same as Harrods within the UK. Concentrated marketing is when the message is aimed at just one small market.

Advantages: Small firms can concentrate their marketing, allows a specific mix to be developed.

Disadvantages: Ignores other areas of the market, can cause problems in future as may make it more difficult for company to expand.

Some companies, particularly smaller companies, identify a comparatively small segment of the market on which to concentrate their marketing effort. By selecting a niche in the market for themselves, they hope to avoid head on competition with larger and more powerful rivals. A classic example of a successful product in a small market is the hand-made Morgan sports car (UK), the demand for which keeps the company’s order books filled. Rolls Royce, though a much larger company, has been equally successful in catering to a small but affluent segment of the international market. Niche marketing, as concentrated segmentation is sometimes called, is currently very popular. It is no guarantee of a safe haven, however, since mass marketers will only ignore niches as long as they see no way to compete in them profitably and as long as they are not threatened by them. Should an opportunity or a threat be detected, however, the market power of the mass marketer would prove very uncomfortable for the richer.

Proposed Waitrose’s segmentation

Waitrose’s differentiation strategy and its competitive industry were analysed. The selection of the location can be identified as one of the most influential decisions in the life of a store. Various methods are described in order to help identify the most suitable location. The merits and problems of online shopping are explained and it is regarded as too early to evaluate Waitrose’s performance in this segment.

Market segmentation allows Waitrose to ‘identify different groups of buyers who share similar definable needs and behaviours.’ (Debbie Anderson) Whilst Behaviouristic responses are fundamental to segmenting Waitrose’s market as factors such as usage rates, impulse purchases, loyalty, and sensitivity to marketing mix factors allow for conclusions and positioning within consumer markets.

Waitrose seems to segment its market based on simple variables such as incomes and Geographic’s (geodemographics). This has been identified by associating the number of Waitrose stores in the south of England with the average incomes, showing that Waitrose is aiming at the higher income earners at the upper end of the market, and segmenting itself toward the social groups of A, B and C1. There are no Waitrose stores in areas such as Newcastle, Middlesbrough, Liverpool and Bradford, Britain’s poorest regions indicating that Waitrose would not benefit financially from these areas. The use of Geo demographics is a fast and efficient way of identifying trends within certain geographical areas, allowing Waitrose to divide a market into different groups based on social class and lifestyle characteristics.

Segmentation helps the marketers to distinguish one customer group from another

within a given market and thereby enables him to decide which segment should

form his target market.

Targeting strategy

Once a firm has successfully identified the segments within a market, the next step is to target these segments with products that closely match the needs of the customers within that segment.  There are a number of targeting strategies, including:

Niche/concentration marketing – this is concerned with targeting one particular, well-defined group of customers (a niche) within the overall market. 

An example is, Jordan’s, the cereal company, adopted this approach by targeting groups of customers interested in organic products at a time when this group of consumers represented a relatively small proportion of the overall market. 

Niche markets can be targeted profitably by small firms who have relatively small overheads and, therefore, do not need to achieve the volume of sales required by larger competitors. 

The main disadvantages of niche markets are that the potential for sales growth and economies of scale may be limited, and the survival of the firm may be seriously affected if sales begin to decline.

Mass/undifferentiated marketing – this is concerned with selling a single product to the whole market.  This strategy is based on the assumption that, in respect to the product in question, customers’ needs are very similar if not identical. 

The main benefit for the firm is that it can produce on a large scale, benefiting from low unit production costs via economies of scale.  These lower costs can be passed on to the consumer in the form of lower prices because, although profit margins on each item sold may be lower, high sales volume should generate large profits over