Superdrug is planning to launch new product “Reek body oil” for customers with sensitive skin. The company’s brand is getting a national recognition in the UK and the firm’s financial performance has been outstanding. As the head of marketing I have been tasked by the board to plan and implement strategies that will successfully launch the new product into the market.
The company also wants to grow in its geographical area by introducing the new product and grow it.
Introduction of this product will increase the market share of Superdrug and also influence the company’s financial performance.
This report will look at Superdrug’s structure and also suggest the suitable strategy to introduce the new product and also a suitable dissemination process to gain commitment of the stakeholders.
Superdrug became a part of AS Watson Family in October 2002. Superdrug was founded in 1964 by Goldstein family who, after establishing the business from just one store to several stores then sold the Superdrug business in 1987 to Kingfisher. In 1988 the Tip Top chain was acquired by Kingfisher in order to expand the company further. Next year in 1989, the companies’ number of stores increased to 650 by the acquisition of Medicare chain.
Superdrug was then bought by Kruidvat Baheer BV in 2001 who then sold their retail assets to ASW in October 2002.
Superdrug is the second largest health and beauty retailer which currently operate over 900 stores in UK and Republic of Ireland. Superdrug currently has 226 in store pharmacies as well.
According to T.M Burns and G.M Stalker (1961) there are two kinds of structures that a company can choose from, namely Organic and Mechanistic. Companies adapt structures to help them react to different changes and uncertainties in the environment.
In a dynamic and uncertain environment companies need to adapt or maintain an organic style structure and companies who operate in a certain and stable environment may benefit from a mechanistic style structure.
A few characteristics of each of the above mentioned structures are mentioned in Appendix 1.
According to the characteristics explained in appendix 1, Superdrug operates in a certain and stable environment and benefits from the mechanistic style structure. This type of structure is recommended for Superdrug in order to successfully launch its new product in the market.
Adapting this type of structure will enable Superdrug to react to changes in the environment.
POTENTIAL OPTIONS FOR DEVELOPING STRATEGY:
Every organisation that wishes to achieve its goals or to successfully complete a specific project needs to develop a strategy. We can use a strategy to increase the profitability of a projects success.
In order to successfully launch the new product into the market Superdrug needs to adapt a strategy that will enable it to gain an advantage over its competitors.
Below is a description of different strategies that Superdrug can choose from. The choices of strategies are from Porters generic strategies of cost leadership, differentiation or focus on the niche market.
PORTERS GENERIC STRATEGIES:
According to Michael Porter a firm positions itself by leveraging its strengths. He argues that a companies strength falls into one of two categories: cost advantage and differentiation.
By applying the strengths of the company in a narrow or broad scope, 3 strategies result which are referred to Porters Generic Strategies, namely cost leadership, differentiation and focus.
The reason why these strategies are called generic is because these strategies are not dependant on the industry or the firm.
Appendix 2 illustrates these strategies.
COST LEADERSHIP STRATEGY: calls for the company to be the lowest cost producer f a product or service within its respective industry regardless of any level of quality. In this strategy the company will sell its product/service at a price which is at an average industry level to gain profit or below the industry average to gain a higher profit than its competitors to gain market share. This strategy is mostly successful in a broad market.
In the event of competition in price the firm can maintain some profitability while the competition suffers.
In instances where the industry matures and prices decline, the company can produce its products more cheaply and remains profitable for a longer period.
DIFFERENTIATION STRATEGY: calls for a company to develop a product/service that will attract customers by its unique properties and customer value it by thinking that it is different or better that its competitors. The company offering this product/service may increase the price due to the value and uniqueness added to the product/service.
A major disadvantage of this strategy is that if the cost of the product/service increases, the cost is then passed onto customers who can easily find the same product/service at a cheaper price.
FOCUS/NICHE : strategy is the kind of strategy adapted by companies which operate in a narrow segment and direct their efforts to achieve a cost or differentiation advantage within that segment.
The company believes that the objectives of the company are better met by fully focusing on the product/service they provide.
Companies operating with this strategy enjoy a higher customer loyalty and because of this customer loyalty it discourages other competitors to compete directly.
A disadvantage of this strategy is that companies have a lower volume of products and therefore have a lower bargaining power with its suppliers.
Another disadvantage include companies operating in a broader market can also adopt the product/service and can compete directly with the company. Competitors that have the same strategy can also adapt the service/product and by cutting out the sub segments to serve better.
Porter also argues that these strategies are not compatible with each other and companies adapting two of these strategies may not profit at all. This kind of situation is referred to as “stuck in the middle” by Porter.
For example if a company differentiates itself by delivering a high quality product, it cannot maintain the same quality of the product if it wishes to adapt a cost leadership strategy.
If a company wishes to be successful by adapting different strategies it needs to develop different business units for each strategy they use.
RECOMMENDATION FOR SUPERDRUG:
In order for Superdrug to introduce the new product “Reek body oil” for customers with sensitive skin, they will need to adapt a strategy which will enable the company to increase its market share and also improve the company’s financial performance.
This product is to be launched in a specific market segment and if this proves to be successful then it will be across the country.
As the head of marketing department, I would recommend Superdrug to adopt the cost leadership strategy as it will increase the market share of Superdrug and also give the company a sustainable competitive advantage against its competitors by offering a good quality product at the cheapest price.
This product is specifically designed for sensitive skin and in a demographic area. Although there are a lot of oils which are aimed at people with sensitive skin, Reek body oil will be cheaper in price and also of good quality.
Successful launch of this product will enable Superdrug to grow it in different areas of the country too.
According to an article in redorbit.com published in August 2007, Superdrug was operating on a differentiation strategy and reported a 2.7% increase in sales and a 34.8% increase in profits for the year to December 2006.
Although this strategy has improved Superdrug’s performance its strategy still faced challenges.
With a very young customer data base and low margins, the differentiation strategy needs to change.
Over the years, the two largest UK health and beauty specialists, Boots and Superdrug have been hit by the supermarkets, which have increased their share of all health and beauty expenditure to nearly half. In order to differentiate themselves from this Boots and Superdrug both adopted the differentiation strategy. Boots focused more on its health credentials and Superdrug improved its reputation to call itself “Top Shop of the health and beauty sector”.
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This strategy meant that Superdrug would have to invest in new store formats which concentrate on its fashion beauty credentials. Superdrug has added fashion accessories to its focus on health and beauty products. Stores were refurbished and reorganised which made them more appealing to customers and the employees have been involved in an intensive training program to improve the customer experience.
Superdrug was also underperforming in the market and losing market share. The profit margin was lowest in the sector at 2.7% which is half of Boots at 6.8%.
The challenge that Superdrug’s current strategy faces is that it appeals to much younger women who do not have a high disposable income, as opposed to Boots customers who are much mature and are prepared to pay more for skincare products and premium brands. Superdrug needs to increase the footfall in stores which will improve the conversion rates and generate high volumes. This will be achieved by more high profile marketing and better customer service.
Source: Verdict Research and Datamonitor.
SUPERDRUG’S SOCIAL POLICY:
Superdrug is a challenging brand on behalf of their customers. Evidence of this is the campaign to reduce the VAT on condoms in 2006 when it was reduced to 5% from 17.5%. Their latest campaign is to reduce the VAT on kids sun care products and also get the government to reclassify sun care products from a luxury items to a essential health item. Superdrug also launches campaign to raise awareness for skin cancer.
Superdrug also has a partnership with the Prince’s Trust which supports young people with learning and developing potential and offers them funds by creating job opportunities.
Superdrug also supports charities and provides funds to them to raise awareness against skin cancer. A couple of examples of these charities include the Institute of Cancer Research, the Teenage Cancer Trust and CRUK.
Superdrug has helped raise over £1 million for these charities.
Superdrug also supports the NSPCC’s childline campaign.
SUPERDRUG’S ENVIRONMENTAL POLICY:
Superdrug has an environmental policy which is committed to:
Throughout all stores and distribution centres Superdrug uses responsible energy management and also cost effective energy efficiency.
To minimise the amount of fuel used by its HGV fleet.
To minimise the impact of materials and services used in building, shopfitting, repairing and maintenance of their premises on the environment.
Recycling, waste management and ensuring the safe disposal of waste.
Considering the environment by using good environmental practices among their brand suppliers and buying decisions.
Avoid using unnecessary packaging.
Working with suppliers of own brand pulp derived products and wood products to use material from well managed forests.
To bring an end to all testing of cosmetics and toiletries products on animals.
When using own brand products, being aware of the environmental issues and taking appropriate actions.
Making sure that their suppliers from developing countries are using acceptable environmental, health and safety, and employment conditions.
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