Chapter 4: Business-Level Strategy 125

Strategic Focus
The Differentiation Strategy—Can Macy’s Again Find Ways to
Achieve Success by Implementing this Strategy?
Rowland Hussey Macy established the firm known today as greater degrees of success? As we discuss next, the firm is
Macy’s Inc. in 1858 at the corner of 14th Street and 6th Avenue taking several actions, many of which return it to its commit-
in New York City (sales on the day the store opened totaled ment to innovation.
$11.06). R.H. Macy, the firm’s original name, contributed a Macy’s North Star Strategy is a set of commitments and
number of innovations to retailing. Known for its creative actions the firm is taking to improve its execution in terms
merchandising approaches, Macy’s was the first department of the differentiation strategy. The North Star Strategy has
store to offer bath towels in an array of colors and was the five components: (1) from familiar to favorite—the interest
first retailer in New York City to hold a liquor license. Macy’s here is to anticipate customers’ needs and respond to them
also “pioneered such revolutionary business practices as the
one-price system, in which the same item was sold to every
customer at one price, and quoting specific prices for goods in
newspaper advertising.”
At the time of its founding and on a going-forward basis,
Macy’s chose to implement the differentiation strategy as a
means of succeeding with customers and other stakehold-
ers. Historically, Macy’s differentiated itself from competitors
on several dimensions including offering private label
brands, providing unique service, stocking trendier prod-
ucts, using specially trained experts to staff its perfume and
make-up counters, and organizing the layout of its stores to
promote easy access to products for customers during their
shopping experience.
For many decades, Macy’s was a successful department
store retailer as it implemented its differentiation strategy.
Times have changed for retailers such as Macy’s though. Today,
for example, 70 percent of merchandise found in department
Astrid Stawiarz/Getty Images Entertainment/Getty Images

stores like Macy’s is available from Amazon and other online

vendors as well. The lack of differentiation between the inven-
tory of a storefront retailer such as Macy’s and the inventory
of online retailers “is the single biggest challenge department
stores face.” Because of the lack of clear differentiation between
what Macy’s and competitors such as retail discounters (e.g.,
T.J. Maxx), nimble and focused firms (e.g., Ulta Beauty), and
online vendors offer, it seems that Macy’s is failing to meet
customers’ expectations regarding sharp differentiation for
which they are willing to pay. Evidence for the firm’s lack of
success in recent times includes multiple consecutive quarters NICOPANDA, known for its edgy and playful looks, launched
of sales declines and the decision to sell a number of stores to an exclusive apparel collection with Macy’s in 2018.
generate cash. Facing this type of situation, analysts believe
that “the best opportunity department stores (including quickly and effectively by offering desirable products and
Macy’s) have is to create products that set them apart, to give enjoyable shopping experiences; (2) must be Macy’s—the firm
customers a reason to go.” How is Macy’s responding to this is again emphasizing its private brands (such as I.N.C. apparel,
situation? What is the firm doing to address the challenge of Hotel Collection and Impulse beauty items) as a way to offer
finding ways to implement its differentiation strategy with value-creating products and services that are exclusive

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
126 Part 2: Strategic Actions: Strategy Formulation

to Macy’s; (3) every experience matters—the firm believes
that its “competitive advantage is the ability to combine the
human touch in our physical stores with cutting-edge tech-
nology” (including mobile apps and the “Buy Online Pickup in
Stores” program); (4) funding our future—to have the financial
resources needed to reinvest in innovations that will create
valuable differentiation for customers, Macy’s is reinvesting in
innovation, reducing expenses that do not serve the customer
directly, and creating value by selling units in its vast real estate
portfolio; and (5) what’s new, what’s next—this commitment
and actions resulting from it “explores how we innovate to turn
consumer and technology trends to our advantage and drive
growth.” As we see, part of Macy’s efforts to implement its dif-
ferentiation strategy with greater degrees of success is to form
a digital strategy through which it uses technology to interpret
information as a means of creating more value for customers.
Overall, Macy’s is trying to set itself apart from compet-
itors in ways that create value for customers. In addition to
emphasizing its private label brands, the firm established
mobile checkout capabilities to speed up service to customers.
It also introduced an incentive plan to its 130,000 employees,
including part-time workers. Through this plan, all employees
benefit when sales exceed internal benchmarks. For customers,
Macy’s established its Star Rewards loyalty program recently. A
three-tier program, the benefits flowing to customers increase
as they spend more with the firm. Collectively, those leading
Macy’s and its stakeholders hope that the innovations the
firm is establishing and on which it is executing will be the
foundation through which the differentiation strategy leads to
company success.
Sources: 2018, Bluemercury, Macy’s Homepage, www.macy’s.com, March 9; 2018,
Company history, Macy’s Homepage, www.macys.com, March 9; S. Kapner & A.
Prang, 2018, Holiday sales rebound at Macy’s and JCPenney, Wall Street Journal,
www.wsj.com, January 4; A. Levine-Weinberg, 2018, Macy’s, Inc. real estate sales
will continue in 2018, The Motley Fool, www.fool.com, January 16; W. Loeb, 2018,
Macy’s makes progress under Gennett, but much remains to be done, Forbes,
www.forbes.com, February 28; Z. Meyer & C. Jones, 2018, Macy’s buoyed by brisk
sales, popular new loyalty program, USA Today, www.usatoday.com, February 27;
E. Winkler, 2018, Macy’s has a spring in its step, Wall Street Journal, www.wsj.com,
February 27; C. Jones, 2017, Why Walmart is soaring while Macy’s flounders, USA
Today, www.usatoday.com, February 22; P. Wahba, 2017, How Macy’s is turning
beauty store Bluemercury into its secret weapon, Fortune, www.fortune.com,
October 4; P. Wahba, 2017, How Macy’s new CEO plans to stop the bleeding,
Fortune, www.fortune.com, March 22; G. Petro, 2016, Macy’s, JCPenney, and Sears:
Where’s the differentiation? Forbes, www.forbes.com, June 22.

the industry.”100 Firms using the focus strategy intend to serve a particular customer seg-
ment of an industry more effectively than can industry-wide competitors. Entrepreneurial
firms and certainly entrepreneurial start-ups commonly serve a specific market niche or
segment, partly because they do not have the knowledge or resources to serve the broader
market.101 Firms implementing a focus strategy generally prefer to operate “below the
radar” of larger and more resource rich firms that serve the broader market. The focus
strategy leads to success when the firm serves a segment well whose unique needs are so
specialized that broad-based competitors choose not to serve that segment or when they
create value for a segment that exceeds the value created by industry-wide competitors.
Firms can create value for customers in specific and unique market segments by using
the focused cost leadership strategy or the focused differentiation strategy.

Focused Cost Leadership Strategy

Based in Sweden, IKEA, a global furniture retailer with 403 store locations in 49 markets
and sales revenue of 38.3 billion euros in 2017,102 uses the focused cost leadership strategy.
Germany, the United States, France, Britain, and China are the firm’s largest markets.103
Using the focused cost leadership strategy, IKEA hosted 936 million store visits and
2.3 billion website visits from customers in 2017. The company’s founder, Ingvar Kamprad,
died recently at the age of 91.
Demonstrating the low cost part of the firm’s strategy is its commitment to strive
constantly “to reduce costs without compromising quality.”104 When customers see a “new
lower price” announcement, IKEA says that it means that the firm has discovered a way
to offer good quality, function, and better prices on its products. Highlighting the focus
part of IKEA’s focused cost leadership strategy is the firm’s target market: young buyers
desiring style at a low cost.

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.