While facing the same threats, GOME (493.HK) and Parkson (3368.HK), both retail companies aware the changes of consumer behaviors years ago and they used two different strategies to turn threats into business opportunities.
Parkson announced profit warning in 2016. From that time, Parkson was looking for solution to solve the declining on sales by open a new concept store called “Parkson Supermarket” and selling high-quality and imported goods. Parkson also set up “Hogan Bakery” which is selling baked foods from Taiwan.
During environmental scanning, Parkson realized, in China and lots of other countries and regions, online shopping is a historical trend which is encouraged by government. Parkson developed an app for online shopping called “Parkson Plaza”. This strategy copes with the rapidly change in the market. In data marketing, Parkson tries to find more business opportunities from consumers' buying behavior. To strengthen cost control, Parkson takes full advantages of data analysis. Parkson also studies on consumer behaviors. Data analysis shows that the age of the main consumer group tends to be post-85s. For example, the 30-year-old or so women will considercolor cosmetics instead of skin care as the main consumption, so Parkson enhanced the sales of color cosmetics. It also found the result in the analysis of the customers’related purchase and walking route, people who bought cosmetics on the first floor usually went to the ground floor to buy imported fruit. Companies can make relevant marketing recommendations based on data.
However, Gome used different strategies from Parkson thought they are facing the same threats.GOME introduces “GOME ecosystem” to their customers which can offer 24-7 service (service available at any time and every day) for online purchases. GOME also provides new experience to customers by launching a virtual reality (VR) decoration platform which focus on home decoration and furniture experience. Furthermore, GOME offers e-commerce to the customers. Customers can buy products from different countries nearby through internet. GOME upgraded its supply chain which allows a wide range of products available for their customers. They aim at selling new products and providing “one-step-pricing process” which offers overall plans or tips for home renovation for their customers like “smart home” instead of selling individual household products.
In conclude, threats are unavoidable for every industry. However, it’s always true that when there are threats, it always comes with opportunities, even for the declining industries. For the two industries above, if those companies stick with the old strategies, they will finally be obsoleted. While to come over the threats and sometimes can create new business opportunities and let the companies growth again.
2a. USING PORTER’S FIVE FORCES AND MACRO-ENVIRONMENTAL ANALYSIS TO ANALYZE THE SPECIALTY COFFEE CAFE INDUSTRY
Porter’s Five Forces framework describes factors that affect bargaining power of various parties and intensity of competition. (Refer to course material - Topic 2 External Environment and Industry Evolution) Under the logic of the Porter’s Five Forces framework, there are 5 factors, they are “Bargaining Power of Buyers”, “Threat of Substitute Products and Services”, “Intensity of Rivalry”, “Bargaining Power of Complementary Product”, “Bargaining Power of Supplies”, and “Potential Rivals“.
(Refer to course material - Topic 2 External Environment and Industry Evolution)
The Porter’s Five Forces framework can help to analyze different parties which may affects the industrial profitability.
2.a.i. Bargaining Power of Buyers / Customers
In the Porter’s five force model, this force refers to how strong the bargaining power of Buyers is. Bargaining Power of Buyers is high when buyers have powers to high product quality with lower price from industry producers.
In the case of Starbucks, the bargaining powers of buyers are moderate to low. From abundance of competition and choice, Starbucks customers have a high level of price sensitivity in coffee chain industry. In 2012, the emerging markets of unroasted coffee in US were exhibiting strong growth, local specialty coffee competitors like Caribou Coffee and Peet’s Coffee & Tea, quick service restaurant like McDonald’s and world’s leading doughnut chain like Dunkin’s Donut started offering high-quality coffee and the competition was entrenched. Buyers, who share the preference of upscale, convenient food experience in a comfortable environment, could easily switch to another coffee shops and bands without switching costs, by having abundant and detailed information about products and services the coffee shops offered. On the other hand, the distribution networks, such as supermarkets, specialty retailers and grocery store, also have moderate bargaining power. They would negotiate a discount on Starbucks’ coffee and teas if they are not selling well in certain location.As a brand of leisure culture, Starbucks has its own price system, and the price is fixed and inelastic, that’s another reason why customers have low bargaining power.
2.a.ii. Threat of Substitute Products and Services
Substitute means goods and services that can satisfy the same needs but in different way. (Refer to course material - Topic 2 External Environment and Industry Evolution) The threat of substitute products and services is about how easy a product and services be replaced by its substitute.
For the specialty coffee cafe industry, the threat of substitute products and services is quite low. It means that other kinds of drinks, such as tea and Coca-Cola. According to the case of Starbucks, coffee is not only a drink for American nowadays, it is all about quality of life. Starbucks creates “American coffee enthusiasts”. Starbucks tries to ensure they will only use the highest-quality coffee beans and Starbucks breaks the traditional that only Japanese and Europeans will buy and use high-quality coffee beans. Besides the quality of the beans, Starbucks also extremely cares the process of roasting. In the case, it mentions “Roasting is close to an art form at Starbucks”. In Figure 1 of the Starbucks case, Starbucks plays an important role in the specialty coffee cafe industry. Starbucks brings high-quality coffee to the specialty coffee cafe industry makes it not easy to be replaced by its substitute.Besides, tea and soft drink shops lack the global influence of chain store brands. From the point of view of sales location, most of tea and soft drink are sold in supermarkets and stores, while a few are sold in stores. Starbucks through the store atmosphere, theme design, commodity display and so on to create a sufficiently dynamic environment, it can not be replaced. Also, Starbucks increases the range of products, including soy milk, beverages, tea, delicacy snacks, and even customized drinks according to customers’ needs. Starbucks takes advantage of brand advantages to enter the supermarket and launch competitions with tea and soft drinks. It founds joint ventures with ice cream stores, hotels, Pepsi Cola and other companies, and gain excellent sales volume. To sum up, in supermarkets, stores and other retail markets, there is a threat of substitute products, but in the chain store market, the threat of substitute product and service is low.
2.a.iii. Intensity of Rivalry
The intensity of rivalry is really high in the specialty coffee cafe industry. Starbucks case makes a very good example to show how high the intensity of rivalry is in the specialty coffee cafe industry. For Starbucks, there are quite a lot of experienced competitors, such as McDonald’s (McCafe), Caribou Coffee, Peet’s Coffee & Tea and Costa Coffee, just to name a few. The competitive is really high in the specialty coffee cafe industry and there are lots of different choices for the customers. Starbucks well-understand this problem and starts to build brand loyalty. According to the Starbucks case, Starbucks changes its logo and train its staffs to help customers. Staffs in Starbucks even teach their customers on home brewing to create long-term relationship with customers. Adding such service can increase the brand loyalty and can increase the customers’ switching cost. Specifically, Starbucks takes below measures to build brand loyalty. Firstly, Starbucks ensures the customer’s brand loyalty through store design, in-store atmosphere, product design and brand operation. Secondly, Starbucks increases the cost of customer transfer by membership card. If the customer transfers, he/she will not get the reward of Starbucks. Besides, Starbucks forms absolute cost advantage, the supplier system, centralized purchasing, standardized contract, operating level and capital cost of Starbucks all form its absolute cost advantage. All these measures make Starbucks success even though the intensity of rivalry is really high in the specialty coffee cafe industry.
2.a.iv. Importance and availabilityof Complementary Product
The complementary product means goods or services that enhance the value of another product or service and so increase demand. (Refer to course material - Topic 2 External Environment and Industry Evolution) However, Starbucks makes the bargaining power of complementary product higher in the specialty coffee cafe industry. Starbucks understands coffee cannot be treated only as a drink for customers, but also an “experience” or “enjoyment” for customers. Starbucks provides a comfortable environment for customers to enjoy their cup of coffee. Coffee makers of Starbucks are like bartenders and the stores are well lighted with jazz as background music. To enhance the needs of customers, Starbucks also offers light lunch for customers, such as sandwiches, cakes, scones and muffins. Starbucks makes the bargaining power of complementary product higher in the specialty coffee cafe industry by enhancing the needs of customers. Starbucks lets their customers to enjoy their coffee.