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Strategy is an organization’s direction and capacity in the long term with employment of an advantage based on its resources in the ever changing environment to fulfill shareholders prospects as was stated by Paul (2010). David (2009) argues that strategy is the most fundamental aspect in business. Over the years, competition has always been an issue for every business. Steve (2001) argues that a strategy helps an organization gain a competitive advantage.

Professor Michael Porter came up with a model of generic competitive strategies aimed at ensuring sustainable competitive advantage. Jan (2009) argues that the generic strategies are based on three main strategies which include: cost leadership, differentiation, and niche strategies.

Porter (1979) states that cost leadership entails an organization working towards being the lowest cost producer in the industry. Cost is driven down in all elements of production like labor and sourcing of products. Most organizations drive costs down, but it is not reflected in the prices opting to maximize on profits based on the premium rate that their brand attracts.

Porter (1980) argues that ddifferentiation is unique in the way an organization offers its services or goods. Competitive advantage enables a company to be unique and results in making the business successful. If differentiation strategy is employed, the organization will focus on particular sections that will enhance their cutting edge.

This is going an extra mile by making products that are already in the market unique only to the organization’s customers. Any new concept that the organization initiates can be patented to ensure competitors do not replicate the concept. A patent, however, lasts for a given duration and when the period expires the concept can be used by any other business.

The third strategy is niche strategy. Porter (1996) argues that in this strategy, emphasis is on a particular segment that will create a reputation for the organization based on its products and services. Porter (1985) argues that the competitive advantage in this strategy is dependent on the differentiation in the particular segment or being a low cost producer. By combining the two strategies, the organization can opt to emphasize on a particular segment differentiated service or product or low cost service or product. The objective is to focus on one section.

Jan (2009) argues that the only loophole in using generic strategies is when an organization employs all the three strategies at once, and ends up being stuck in the middle of a phrase used to show a counterproductive resulting from the combination. This creates a situation where there is no clear business strategy resulting to increased running costs, fall in market share and sales.

Analysis

The study will focus on how ASDA has employed Michael Porters’ generic strategies. ASDA is a chain of supermarkets in the UK retailing food, financial services, clothing, and general merchandise. It also has ASDA mobile telephone network with its head office at Leeds, West Yorkshire. Guardian Business (2012) states that in 1999 ASDA became a subsidiary of American giant retail store Wal-Mart.

ASDA over the years has been employing cost leadership as its main strategy. ASDA marketing campaigns emphasize on pricing alone. They have always used the slogan Britain’s lowest priced supermarket, 14 years running. The takeover in 1999 was part of a long term process to emulate Wal-Mart’s success in America strongly attributed to use of cost leadership to control market share.

Guardian Business (2012) states that ASDA’s strategy is directly involved with Wal-Mart due to the acquisition. After the Wal-Mart acquisition, ASDA has been accused by many shoppers of misleading advertisement, lack of environmental policy, constantly ignoring planning regulations, and illegal employment practices. There are also incidents of aggressive takeovers of small towns running local competition out of businesses and locals losing their jobs.    

This is a typical aftermath of cost leadership since most small competitors cannot keep up with the low cost of production. Cost of production can be lowered effectively when there are economies of scale an advantage that small retail stores do not have.

ASDA Market share

Market share in a business directly affects implementation of a strategy especially use of Porter’s strategies. With a high market share, it is easy to employ cost leadership based on the guarantee of selling more volumes at low prices. Guardian Business (2012) states that ASDA is the second largest supermarket in the UK commanding behind Tesco with 17% of the market share. The market share is expected to sufficiently grow in the long term based on ASDA financial muscle derived from Wal-Mart, which is believed to be the global leading corporation in terms of value.

Guardian Business (2012) states that, ASDA diversified into the sale of non-food items which has increased its general market share. ASDA grew and overtook one of its major rivals like Sainsbury which was initially the second largest chain store in the UK. During the first five years after acquisition, they did not embark on acquiring any new stores, but grocery market share had tremendously increased from 13% to 16%. By June 2004, ASDA had grown to 259 stores and 19 depots in the northern parts of England and Scotland with a workforce of 122,000 people.

Cost leadership and Differentiation strategy in ASDA

Guardian Business (2012) states that after creating a strong market share, ASDA employed a hard line price war campaign using their popular marketing line everyday low prices to attract customers. In 2001, ASDA introduced the first 400 smart price food products centered on Wal-mart 450 million pounds budget, and it resulted in prices being slashed by 52 million pounds. Wal-Mart replicated to ASDA the use of increased sales area by doing away with stock room space and increased the sales area of non-food items.

Guardian Business (2012) states that this was a new idea that caught other competitors unaware and they had to catch up in order to compete. This is a perfect scenario where differentiation was employed and it proved to be effective. In 2002 5000 general merchandise items were added to ASDA range resulting to sharp increment of non-food items from 8,000 to 12,000 jointly obtained by Wal-Mart. This brought a revolution in general item sales in the UK that had never been witnessed before.

Corporate Watch UK (2004) states that simple household items like kettles and toasters started retailing at less than 8 pounds, prices that both customers and competitor stores had perceived impossible for profitability. The massive price cuts resulted in growth of non-food items sales by more than 25%. Customers were gaining extraordinary bargains and even loyal competitor customers opted to shop at ASDA.

Financial Times (2011) suggests that ASDA resulted in a change in strategy in regards to out of town superstores development due to the government regulation, and focus was significantly shifted to the High street. ASDA made a public statement on 16th November 1999, to embark on a fight to get new stores on the High street since hypermarket sized developments outside town were limited based on government planning control measures. The roll out plan in 2004 was to open more than 50 small stores specializing on drinks and food. The move costed 75 million pounds excluding clothing inventory.

Conclusion

Porter’s generic strategies have been useful in the success of ASDA supermarket chain. Use of cost leadership is the most significant element in their success, and has created a competitive edge for ASDA since most competitors cannot afford to offer their goods and services at such low prices and maintain profitability. Differentiation has also led to increased market share which has been portrayed when they pioneered the use of increased sales area, by doing way with stock room space and increased the sales area of non-food items.

The only loophole in using generic strategies is when an organization employs all the three strategies at once and ends up being stuck in the middle. This creates a situation where there is no clear business strategy resulting to increased running costs, fall in market share and sales.

Code: Sample20

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