REED SUPERMARKETS: A NEW WAVE OF COMPETITORS

MANAGERIAL COMMUNICATION 1 Submitted to Professor Amarnath Krishnaswamy 7/27/2011

M.Sagarika Roll no: 1111352 Section E

Sagarika Page | 2 .Managerial Communication .I 1111352 M.

4 2. PROBLEM DEFINITION…………………………………………………………….2 Long term………………………………………………………………………….1 Short term…………………………………………………………………………..4 4.4 3. COMPARATIVE EVALUATION OF OPTIONS……………………………………6 7.1 Assumptions……………………………………………………………………….4 3...I 1111352 M. DECISION MAKING…………………………………………………………………7 8.5 6.7 9. SITUATIONAL ANALYSIS…………………………………………………………3 1. CRITERIA FOR EVALUATION……………………………………………………. CONTINGENCY PLANNING……………………………………………………….4 3.7 APPENDIX: EVALUATION OF OPTIONS…………………………………………8 REFERENCES…………………………………………………………………………9 Page | 3 . GENERATION OF OPTIONS………………………………………………………. STATEMENT OF OBJECTIVES……………………………………………………. Sagarika TABLE OF CONTENTS 1.4 5.Managerial Communication . THE ACTION PLAN………………………………………………………………….

well known for the quality and exceptionally attentive customer service. was relatively stable. Reed is facing new threats to its position as a leader among the region’s supermarkets and from the competitors like dollar stores and limited-selection stores offering very low. Page | 4 . and had a smaller household than the typical customer. Sagarika Word Count: 1481 (excluding appendix) 1. In 2010. Reed’s CEO had set a Columbus market share target of 16% by 2011. A Reed customer was somewhat older. The Columbus market (with largest share). Reed's market research shows that as a result of the economic downturn (2008-2010). widening the selection of higher-end prepared foods. more affluent. with a hope that consumers would use the dollar specials for price comparisons across chains. Reed led food retailers in the Columbus area with a 14% market share which is slightly lower than the 15% Reed had five years earlier. SITUATIONAL ANALYSIS[1]: Reed Supermarkets is a high-end supermarket chain. Reed had worked hard to maintain margin over the past decade by adding speciality items. 25 Reed stores were located and the company had added no new stores and none were planned. while the low priced promotions drew consumers to specific supermarkets. Reed has launched the “dollar special” campaign in June 2010 to combat its high price image as the customers valued better prices and discounts the most (exhibit 5&6). which in turn would reinforce store loyalty among customers. customer loyalty is dwindling and consumers are willing to go to multiple stores to get the best deals. with operations in several states of Midwestern United States. Also. In Columbus. and retailers were reasonably effective at shedding the lower quality image of those goods. the growth of warehouse and superstores had attracted bulk-buying budget shoppers. and using weekly promotional specials to drive traffic. In US. The company had continued to grow revenues by an average of 1% to 2% per year across its markets. appealing price points.I 1111352 M. but Reed had experienced modest share declines in the past. The median income of a Reed shopper was 12% higher than the typical customer. The private label goods had higher margin potential. discount merchandisers and dollar stores. the American consumers had become more health conscious which enabled the growth of stores like Whole Foods. increasing the private label mix.Managerial Communication .

4. In other words. Stores have the continuous inventory supply to meet the demand of customers. the objective is to reverse the trend of declining market share (14% in 2010 vs 15% five years ago) by winning back the customers they have lost during the economic downturn. 1. Sagarika Also.1 Short term: The objective of the Reed management is to maintain the share position. STATEMENT OF OBJECTIVES: 3. i. they are not losing out on customers moving to other stores due to lack of inventory 2. the long term objective of the company is to exploit the growth in the purchasing power of customers after recovering from the economic downturn and hence increase its profitability by maintaining high sales volume. the company should be able to satisfy the upscale tastes of the customers who would return back after the economic downturn.Managerial Communication . as the food retailer margins were low. So.1 Assumptions 2.. keep sales growth up and to generate enough profit to keep the shareholders happy by defending itself against the companies which offered attractive price discounts (low prices). 3. The customers’ tastes haven’t changed 4. And also.e. CRITERIA FOR EVALUATION: The criteria for evaluation of options in prioritized order are as follows: Page | 5 . PROBLEM DEFINITION: How should Reed defend against its competitors and meet its target market share of 16% by 2011? 3. The US market has still not completely recovered from the recent economic downturn of 2008 to 2010 and the customers return back as soon as the economic downturn subsides 3. individual company profitability depended on maintaining high sales volume and operating efficiency.2 Long term: The main objective is to meet the set target of 16% market share by 2011.I 1111352 M. increase the market share and build a strong and loyal customer base.

Expand the low price models: Focus more on wider discounts as customers value the low prices the most. GENERATION OF OPTIONS: The options which can be considered for evaluation by Reed are as follows: 1. would lead to decrease in the margins and hence the profitability decreases in the short run 2. Pricing model 2. then the Reed will lose out the regular up-scale customers 3. Expand the dollar specials campaign without limiting it to certain days in a week and certain products. Satisfy up-scale tastes of customers The constraints are as follows: 1. then Reed will lose out the large middle and lower class customer base 4. expand the private label brands and introduce double couponing Page | 6 . If the higher end brand image is diluted by introducing low priced goods and deal campaigns.I 1111352 M. Reed cannot expand its market share by adding new stores in Columbus market at least in the next two years due to capital constraints 5. revenue maximisation 5. Maintain Status Quo: Maintaining dollar specials program and wait for the increase in the footfall and hence in revenues assuming that the customers change their perception about Reed as a high priced store 2. Offering steep discounts. If the higher end brand image is maintained by focusing on the premium products. Brand image 3.Managerial Communication . Sagarika 1. Profitability. for example “dollar specials” campaign. Increasing customer traffic (by launching promotional offers) – increase sales 4.

I 1111352 M. Variety/ One stop shopping: As dollar stores supply only limited items. COMPARATIVE EVALUATION OF OPTIONS: The evaluation of the various options on the selected criteria is summarized in the table below: Table 1: Comparative evaluation summary Page | 7 . Differential segmentation: Experiment by dedicating separate stores where Reed can concentrate only on the price sensitive customers by moving to daily low priced models.Managerial Communication . Sagarika 3. Maintain the high end image in the other stores (preferably in the affluent areas) 6. Differentiation based on value and services: Maintain the high end brand image by scraping the dollar specials and appealing to customers who are looking for a quality shopping and who are ready to pay a premium 4. Increase footfall by adding new stores: Adding new Reed stores in the areas with potential population growth and in locations where there are no or not many supermarkets 5. Reed can focus on moving towards one stop shopping by increasing its variety 6.

might increase in long run Diluted overall revenues. This choice is justified as is evident from the table 1 that it leads to an increase in revenues as well as profits without any compromise on the brand image of Reed Supermarkets. might increase in long run Low favourable impact Possibly unfavourable impact Slightly increase EXPAND LOW PRICE MODELS Increase Low in short but when Increase Totally diluted Increased appeal Negative impact Increase DIFFERENTIATI ON BASED ON QUALITY SERVICES AND run. probably increase economic downturn subsides Low in short run. increase economic downturn subsides can when Retained. 8. 7.I 1111352 M. scope for increase Increase Increase Likely to increase Increase Slight impact positive Positive impact Increase The detailed evaluation summary of each option is given in the appendix. Also it would attract mass middle class customer base as well as the affluent customer base. THE ACTION PLAN: Page | 8 . the option to adopt differential segmentation approach coupled with increase in variety is chosen. can increase economic downturn INCREASE FOOT FALL ADDING STORES DIFFERENTIAL SEGMENTATION VARIETY/ONE STOP SHOPPING BY NEW Increase shortrun. but increase subsides Decrease capital due costs to in but Intact. Sagarika OPTIONS CRITERIA / REVENUES No effect run in on PROFITABLITY BRAND IMAGE LOW END HIGH END MARKET SHARE CUSTOMERS CUSTOMERS MAINTAIN STATUS QUO short No effect in short run. long run Increase Increase probably increase in Increase High Profits likely dilution of brand Positive impact Retained. scope for increase Slight Unfavourable probably when Increase Unfavourable Retained. DECISION MAKING: Based on the evaluation of the criteria.Managerial Communication .

and by reducing the maintenance costs (payroll etc. Maintain Status Quo: The “dollar special” campaign has increased the store traffic by 3% and during a typical week.Managerial Communication . Sagarika Keeping in mind the capital constraints the Reed supermarket’s management should adopt the option of differential segmentation approach by initially renting or converting the existing stores or collaborating with other low end stores. This shows that the campaign was successful in attracting more price sensitive customers. especially the middle and lower class customers and hence resulted in increased sales. This would decrease the risk of losing out the entire investment made. 4% of the sales were for dollar special items. CONTINGENCY PLANNING: If the management still feels that they are unable to attract enough customers or if they are facing capital constraints. then they can collaborate with or acquire the already existing low end stores in the market. They should advertise extensively about the new strategy to avoid confusion among the customers about its brand image and to attract more customers. The economies of scope can also be exploited by offering more variety as other companies like Dollar stores offer only limited variety of items.I 1111352 M. They should make use of its economies of scale. APPENDIX: EVALUATION OF OPTIONS 1. 9. building the brand image and customer loyalty as well as maximising revenues and market share is a priority. Thus.) try to offer attractive prices than the existing low end stores. Page | 9 . Once the stability is achieved in the market. Reed can expand its market share by adding new stores in the areas with potential population growth.

this might confuse the consumers in terms of Reed’s image. exhibit 3). But. Increase footfall by adding new stores: To achieve the long term objective of increasing the market share and position itself in the lead. Reed should add new stores where there is potential population growth to combat the rapidly expanding low end stores. 3. the items selected for dollar specials had the same overall margin as total sales. Reed would be losing out the larger middle class customer base that is price sensitive and this would decrease the market share. Reed can focus only on their affluent customers who are ready to pay a premium for the quality based shopping experience. 4. 2. hoping that the customers would return back when the economic downturn subsides. The brand image is retained.). Expand the low price models: As customers cited that better prices (75%) and the discounts and coupons (62%) are the most important factors in Exhibit 6. Assuming that the consumer changes his/her perception that Reed is high priced. Reed can consider expanding the dollar special model to a daily based model which covers almost the entire range of products by reducing the maintenance costs(which include employee salaries etc. But. and the affluent customers might move away from the company. on an average.Managerial Communication . the affluent customer base who value quality shopping would be lost almost completely.4 in 2010. Due to the capital constraints. Sagarika However. As the campaign seemed to be too close to dollar stores.I 1111352 M. this model might result in increased revenues and market share in the long run. Differentiation based on value and services: Reed is perceived as the high quality supermarket (quality index of 8. Reed Page | 10 . This model helps in attracting the large middle class customer base and results in increased revenues and market share.

27th July 2011 IST 2. it can focus only on the premium customers in the remaining stores (located preferably in the affluent areas) to continue attracting its high end customers and retain its high end brand image.Managerial Communication . or convert some of the existing stores or altogether collaborate with low priced stores to focus exclusively on the price sensitive customers. http://hbr. Differential Segmentation: Reed supermarkets can either rent some new stores. 5. Implementing this plan requires some initial capital investment and might lead to dilution of the brand image and confusion in customers in terms of Reed’s market position for a certain initial period.org/product/reed-supermarkets-a-new-wave-of-competitors/an/4296-PDFENG last accessed at 0523 hrs. REFERENCES: 1. Discussed the case analysis and approach with classmate Ananya Manna Page | 11 . Sagarika cannot add new stores in the next two years. but it think about collaborating with any lower end stores or renting stores.I 1111352 M. Harvard Business Review.New wave of Competitors. On the other hand. Reed Supermarkets.

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