Factors to be considered for market segmentation

Factors to be considered for securities application placeplace sectionalisationThis section reviews the publications related to various reportstone deliver ables set for this dissertation. The master(prenominal) deliverables of this projects be create a growth system to expand in home(prenominal) as well as international commercialize and identifying the po tennertial positioning for a cross get in or a w atomic number 18house. This section is divided in six sparks, stolon part feeds idea around the grocery commercialise, in second part key elements and approaches of strategical management are discussed, third part looks at factors to be considered for grocery surgical incisionation and merchandise attractiveness, in fourth section a watch over conducted by Lawson Software on growth strategies undertakeed by distri exactly ifers discussed , in fifth part trade expansion strategies are reviewed and last part overviews warehouse/ storage localization o f function problem and approaches to identifying new depot.2. 2 Grocery Market OverviewGrocery market domiciliate be divided in cardinal main categories one is grocery retailing and other is grocery wholesaling. Eden farm is a sell distributor publishing frozen diet and ice cream to in large quantitiesrs as well as convenience store, wherefore understanding structure of both the market instalment is most-valuable.2.2.1 Grocery RetailingThe UK grocery retail market is considered to be oligopolistic as there are so many butterflyers and competition is fierce to earn the market share and guest loyalty. The fol let looseing draw shows that the retail intentness has grown broodently at 3 5% to the present shelter of 146.3bn (IGD website, 2010).D moving in Projectfrozen feed promised land farmliterature reviewpaintmarket performance.JPGThe retail market is rule by superstores, supermarkets and hypermarkets operated by big retailers such(prenominal)(prenominal) as Tesc o, Asda, Sainsburys and co ops, which enjoy to a greater extent than 70% market share. Convenience retailing has c21% market share which is mainly dominated by symbol groups. The following diagram shows the boilers suit structure of the retail market.D bank line Projectfrozen food eden farmliterature reviewpaintuk retail structure.JPG2.2.2 Grocery WholesalingWholesalers supply goods to small retailers who cannot directly reach to the manufactures. Wholesalers also support retailers by offering other work worry store design and management, talking to and diffusion services. Grocery wholesaling is mainly divided in deuce groups, starting beat is cash and carry service where the retailer visits the large warehouse and picks the items he needs and the second is delivered wholesale where the retailer orders the items over phone or on the internet and receives the order at his store. The total wholesale occupation is c18.3bn (IGD website, 2010). The following chart shows the grow th of cash carries and delivered wholesale in last ten years.DBusiness Projectfrozen food eden farmliterature reviewpaintcash and carry.JPGA research conducted by Quinn and Sparks (2007) on evolution of grocery wholesaling and wholesalers since the 1930s in UK and Ireland observed that the research on grocery wholesaling is almost non-existent.2.3 schema- what is it?Strategy word is utilize by many people day to day in different context and has become a catchall (Hambrick and Fredrickson, 2001). Carpenter and Sanders (2009) narrow downs schema in child equivalent terms as Strategy is the coordinated means by which an organization pursues its goals and objectives (Carpenter and Sanders, 2009). This simple definition emphasizes on actions that are either taken or needs to be taken or planned to obtain the keep come with objectives. Hambrick and Fredrickson (2001) supports to a high place definition by mentioning that scheme should contain privileged and remote orientat ion to fall upon unswerving objectives. The following diagram clearly consorts scheme from company mission and objectives.DBusiness Projectfrozen food eden farmliterature reviewpaintstrategy.pngStrategy should address how the cockeyed provide achieve the set objective. For Eden Farm the objective is to achieve profitable gross gross sales increase by 20 million in next five years.2.3.1 Strategic psychoanalysisMichel hall porter (1996) argues that strategy is not more than or less achieving usable effectiveness (OE). porter defines operational effectiveness as doing identical activities in a superior way than the competitor. The reason he says that OE cannot be a strategy is that rivals can easily copy the operational improvements and match the performance levels. He further mentions that operational effectiveness and strategy should go hand in hand to achieve the top performance which is the main goal of any besotted. Doing benchmarking makes rivals look alike, so t he essence of strategy lies in doing the activities in a way different than others. This highlights the importance of hawkish profit, which is defined by Carpenters and Saunders (2009) as A dissolutes ability to create value in a way that its rivals cannot. Porter (1980) mentioned that competitive advantage can be achieved by fasts by either positioning itself in an attractive industry or devising strategies which can make the vivacious industry more attractive. He call downed Five Forces material to analyze the industry structure and identify the sources of competitive advantage among these forces and then positioning the firm to achieve an edge over rivals. Barney (1991) argues to achieve keep up competitive advantage firm should suck alternatives and capabilities which are valuable, rare, inimitable, non synonymous and rare (VRINE), this school of image is called resource based view (RBV). A third school of thought focuses alive(p) conditions and argues that RBV h as limitations in fast changing environment and competitive advantage is achieved by firms by forever configuring its resources.Carpenter and Sanders(2009) clubs these ternary perspectives together as shown in the diagram below and suggests that competitive advantage is not long lasting and firm needs to continuously look back and analyze how they achieved this position and prognosticate competitive landscape in future to influence it.DBusiness Projectfrozen food eden farmliterature reviewpaintcompetitive advantage.png2.3.1.1 immaterial Analysis Industry Analysis using Porters Five ForcesExternal outline forms a very important part on strategic analysis. The external environment can be divided into two groups as macro and micro environment. To analyze macro environment PESTEL tool is used which is acronym for Political, Economical, Socio cultural, Technological, Environmental and Legal analysis. This analysis is more useful when companies plan to expand internationally and en ter into new countries. For Eden Farm creation a distributor of frozen food, PESTEL analysis is not more allow for as the firm does not foresee it establishing a base in other country and is focusing direct trade only. (Carpenter and Sanders, pp 133-135, 2009) little analysis focuses on analyzing industry structure using five forces sit true by Porter(1979). The model suggest that in any industry a strategic analysis should look at emptor and supplier power, competition among the players in the industry, analysis of threat posed by substitute products or services and understand the entry barriers for new entrants. Porter mentions that depending on the industry the power of each force varies, but it is the cumulative strength of these forces which drive the gainfulness of the particular industry.The following diagram shows the Porters five forces model.DBusiness Projectfrozen food eden farmliterature reviewpaint5forces 1.JPGAbove diagram shows in detail the factors contributi ng towards each market force, managers should give due attention to each point shown below to draw appropriate conclusion for developing the strategy. Porter argues if these forces are weak then companies can achieve very good performance and adds, it is the strongest force among these forces which decides the overall profit potential of the industry and managers needs to give due attention to this strong force period formulating the strategy. Carpenter and Sanders(2009) added complementors as the sixth force to the five forces model and argues that complementors are those factors which help to increase the sales of the firm and increase profits. When understanding the industry structure Porter (2008) emphasizes importance of be the industry boundaries, defining boundaries too broadly loses the focus and managers become unable to see the real competition and defining industry boundaries narrowly misses the similarities in product groups or potential markets which are crucial for c ompetitive advantage.2.3.1.2 Internal Analysis A Resource Based View (RBV)Jay Barney (1991) suggested that firms should focus on internal strengths to exploit the opportunities in the market and defuse the effect of external threats and mitigate the weaknesses. The diagram below splits the SWOT analysis in two parts, one is internal analysis which focuses on firms resources and the second is external analysis which classifies industry attractiveness.DBusiness Projectfrozen food eden farmliterature reviewpaintbarney.pngBarney (1991) argues that proponents of environmental model (Caves Porter 1977, Porter 1980, 1985) have assumed that in an industry firms possess similar resources and heterogeneity in the industry is cannot stay for longer as resources are same, stock-still supporters of resource based model (Penrose, 1958 Rumelt 1984 Wernerfelt, 1984, 1989) believes that firms do possess heterogeneous resources of strategic importance and that this difference of resources can las t longer. Barney (1991, 1995) states that to achieve the sustained competitive advantage firms need to employ value creating strategies in a way that no other firm can reproduce it and mentions that it can be possible when a firm have resources which are heterogeneous and immobile. To be the source of competitive advantage resources needs to effect criteria of being valuable, rare, inimitable and non substitutability. Valuable resources are those which enable companies to develop strategies which improve efficiencies and effectiveness to reduce the cost, resulting into exploiting opportunities and deactivation threats (Barney 1991, 1995 Collins and Montgomery, 1995). Barney mentions that firms having resources which fulfill four criterias should be in a position to exploit them to achieve the sustained advantage. Wernerfelt (1984) highlights customer loyalty as a source of competitive advantage. Collins and Montgomery (1995) mention that inimitability of the firm resources can be because the firm has unique physical location, a strong brand image or casual ambiguity about the source of such advantage.2.3.1.3 Dynamic Environment AnalysisDespite its popularity resource based view (RBV) has been criticized by some authors because it does not explain how firms achieve relevant resources for dynamical markets. Mosakowski and Mckelvey (1997), Priem and butler (2000) and Williamson (1990) argues that RBV is unclear and tautological and fails to explain the mechanism by which resources contributes towards achieving competitive advantage. Teece and Pisano (1994) coined a new terminology of dynamic capabilities the word dynamic refers to the ability to reconfiguring competencies in this fast paced continuously changing humanness and the term potentiality focuses on strategic managements role in adapting, integrating and reconfiguring skills, resources and functional competences to fulfill requirements of a changing world (Teece and Pisano, 1994) . Eisenhardt and Ma rtin (2000) observed that dynamic capabilities exhibit three main characteristics firstly dynamic capabilities include certain value creating strategic processes which can be influenced to create new strategies to win in the dynamic market. Second expression is that dynamic capabilities are the best practices in an industry supported by extensive empirical resources and so they are homogeneous in nature which is opposite of the RBVs assumptions. Third observation is that dynamic capabilities demonstrates different patterns in different market conditions, they are complicated and analytical in stable market conditions because the knowledge is transact and detail analysis is required for getting new insights and in dynamic market conditions they are simple processes relying on quick execution as the knowledge is limited about specific situations and experiments needs to be done on a more frequent basis to keep the firm ahead of the competition. Eisenhardt and Martin (2000) states that dynamic capabilities are necessary to continuously reconfigure resources and the competitive advantage is achieved by newly configured resources. Dynamic capabilities are means to achieve the competitive advantage they are not competitive advantage in themselves. A firms ability alliance, developing new products and strategic decision making are some of the examples of dynamic capabilities (Eisenhardt and Martin, 2000).2.3.2 Strategy Formulation using Strategy DiamondHambrick and Fredrickson (2001) states that there are various tools available to analyze internal and external environment but there is no guidance what the output of these analysis should be and how to throw a strategy. Strategy should highlight how the company will achieve its goals by integrating internal and external analysis. A strategy ball field model is proposed by Hambrick and Fredrickson (2001) to help formulate a coherent strategy which contains five elements namely arena, fomites, differentiators, sta ging and economic logic. The diamond is shown below.DBusiness Projectfrozen food eden farmliterature reviewpaintDiamond.pngArenas is the first element of the strategy diamond which demands strategist to answer fundamental question about what are the areas the business will be focusing its attention and the amount of efforts put in these areas. Managers need to clearly define which products, channels, market segments and geographic location will be targeted. Vehicles are the means to enter the arenas chosen. Deciding appropriate vehicles is of strategic importance. A firm can decide to develop organically, may decide to form a joint venture or may acquire the business of existing player in the targeted arena. A firm can use one or combination of these different vehicles to penetrate arenas. Each vehicle has its positive and negative implications depending upon the market dynamics and manager should give due considerations to these implications. After deciding arenas and vehicles st rategist should answer the question as how the company will win the customers in targeted markets. Knowing why customers chose the firm over its competitors can help strategist to identify differentiators. Differentiators can be company image, its ability to customise products, price and location advantage, quality and reliability of the service provided. Hambrick and Fredrickson (2001) state that to achieve a competitive advantage a firm does not need to have very special in one of the above mentioned dimension but having a combination of these dimensions which are mutually reinforcing can give the firm a strong position in the market. Creating differentiators is very important task top management should because without them a firm may lose its market position soon. Staging is the forth stage towards forming a good strategy and asks mangers to sequence the actions decided in the first three elements. Staging process depends on many factors such as resources required carrying out th e task, sometimes business need to respond quickly to grab opportunities available, in such situations urgency in taking actions is slender, achieving credibility is very important for attracting resources and stakeholders and lastly wining early in the strategy implementation phase is important. in all the above mentioned factors needs to be given due consideration. lastly managers should look at the economic logic before finalizing any strategy the business should be able to achieve profit above its cost of capital. Hambrick and Fredrickson (2001) states that, the most successful strategies have a central economic logic that serves as the fulcrum for profit creation. Hambrick and Fredrickson (2001) emphasis that together with strategic analysis and addressing the five elements of the strategic diamond a firm can develop a sound strategy for achieving the competitive advantage.2.4. Market segmentation and attractiveness constituenting the market to identify the needs of the custo mer groups and feelering attractiveness is very important to develop a growth plan. Kotler (1993, p.263) defines Market segmentation is the act of dividing a market into distinct groups of buyers who might require separate products and/or marketing mix. Smith (1956) suggests that segmentation help companies to align product offering to different customer needs. Dibb (1995) suggested a matrix to help firms to identify which market segments to target, the matrix is called Segment Evaluation Matrix (SEM) which consist three step approach as defining segments, targeting and positioning. In the first stage, defining segments, many authors (Haley, 1968 McDonald and Goldman, 1979 Johnson and Flodhammer, 1980 Brow, Shivashankar and Brucker, 1989) have suggested a need for appropriate base. Segmentation of customers should be done considering homogeneous needs of the group by a suitable base. Targeting involves focusing resources on identified segments this is achieved by considering market conditions, competition, availability of firms resources and customer needs. berth is the final stage which asks to develop marketing plans keeping 4Ps (product, price, promotion and place) in mind to attract the targeted customers.Porter (1996) proposes three showcases of positioning choices for a firm, first is variety- based positioning which focuses on products or services offered by the firm rather than segmenting customers, this is suitable for firms able to produce products or services using distinguishing sets of activities. Second type is need- based positioning which require grouping customers on the basis of needs. This is particularly suitable when each identified group has differing needs like different products, service level and supported needed. Third type is access based positioning which focuses on different modes to reach customers having similar needs like other customers.geographic location or customer scales are two examples which require different set of a ctivities to reach the customers. nuzzle and Cardoza (1974) observed that many companies formulate segments based on intuition, Doyle et. al (1986) supports above relegateing by stating that key decision makers misunderstand importance of segmentation process. Kotler (1991) offers guidelines for segmentation by stating that they should be measured, substantial, accessible and accountable. Halvacek and Reddy (1986) have developed a three step market segmentation model consisting of identification, qualification and attractiveness which is the basis for Dibbs (1995) Segment Evaluation Matrix (SEM). Hlavacek and Reddy (1986) suggests guidelines for segment qualification which highlights segmentation based on common needs and measurable characteristics, identifying the competition, similar statistical distribution channel for each segment and defined communication channel for each segment. pick up conducted by Abratt (1993) identified segment attractiveness criteria asAbility to rea ch buyers in market warring position in marketSize of marketCompatibility of market with objectives/ resources andExpected market growth ( Dibb, 1995)Dibb (1999) categories segment attractiveness in four major categories as market factors, economic and technical factors, competitive factors and environmental factors which are as shown below in the diagram.segment attractivness 1Dibb (1995) suggests that for developing a marketing strategy analysis can be done on the basis of different markets, segments in the same market which can give lot of insights. Market segmentation encourage firms to do competitor and customer resulting into more focused approach in terms of offering products or services and improved responsiveness. As suggested by Dibb (1995) a matrix can be used to summarize the findings of the analysis as shown in the diagram.segment attractivnessThe matrix approach gives a holistic view of the portfolio of all segments and helps companies prioritize actions and develop s trategy thence for each segment.2.5 Growth Strategies for Wholesale DistributionAnsoff (1957) suggested a tool to help companies decide their product and market growth strategies. The matrix suggests four growth strategies as shown in the diagram below.DBusiness Projectfrozen food eden farmliterature reviewpaintAnsoff.JPGFor existing products Ansoff (1957) suggest market penetration and market using strategies. For new products product development and diversification strategy is suggested.Lawson software in 2007 conducted a hatful of 1274 wholesale distributors operating in three regions North America, Europe and Australia and New Zealand to find out what strategies and tactics wholesale distributors in these regions will adopt to achieve targeted growth and find out similarities and differences in the strategic choices in different regions. The participants were picked from different industries such as industrial spare parts, consumer goods, building material and food service. 70% of the participant view existing customers as the main source of growth. Following diagram shows results for three regions.DBusiness Projectfrozen food eden farmliterature reviewpaintlawson 1 current customers.png2.5.1 Selling more to existing customersIn Europe executives of food service distribution think that 41 % of the sales from current customer will come from selling existing products more, 46% sales would result from selling new products and offering fee based value adding services will improve 12% sales. The following diagram shows results from different industries in Europe and North America. Europe is more optimistic about charging customers for offering value adding services.DBusiness Projectfrozen food eden farmliterature reviewpaintcurrent customers.png2.5.2. Adding New CustomersThe survey found that majority of the distributors are focusing on current geographic locations to identify new customers, 78% foodservice distributors are focusing on new customers in th e current geographic locations, only 22% sales expected from customers in new geographic locations .DBusiness Projectfrozen food eden farmliterature reviewpaintNEW CUSTOMERS.pngTargeting new customers in current geographic areas is challenging because they already have preferred suppliers and to win these customers distributors need to offer ruin service and performance. A good sales management is needed to avoid winning new customers with low gross margins than current customers.2.5.3. Organic or Growth by AcquisitionThe survey tried to find growth strategies adopted by distributors. More than sixty percent respondent considers organic growth as the means to improve current operations. Sixteen percent in Europe consider acquisition as a growth strategy. The diagram below shows results of the three regions.DBusiness Projectfrozen food eden farmliterature reviewpaintgrowth strategy.pngAll the above findings suggest that wholesale distributors are focusing market penetration and ma rket development strategies as explained by Ansoffs growthmatrix.2.6 Export Market Expansion StrategiesWhen small and average sized firms essential to go in international market , exporting is the most popular route adopted to enter, penetrate and develop outside market because it is less risky and impact on domestic operational resources are limited ( Katsikea et.al., 2005).Firms willingness and craving and its actual capacity are the two main factors which determine a firms decision to initiate and find exporting determination. According to Cavusgil and Zou (1994) when a firm decides to engage in export activity the most critical decision they need to take is about market expansion strategy. The strategy includes identification, analyzing and selecting export markets and deciding tote up of markets to target. Lages and Montgomery (2004) conducted a survey of 400 export managers and found that export performance of a firm depends on firm commitment and the way strategy is for med. Designing an export strategy for a firm has attracted many researchers, contributing conceptually and empirically. Ayal and Zif (1979) and Lee and Yang (1990) suggested that export market expansion is considered as a firms strategic decision to expand export business by allocating firms marketing resources to identified markets.According to Katsikeas and Leonidou (1996) exporting literature has identified two main marketing strategies as market niggardness and market spreading. Katsikeas and Leonidou (1996) defines market concentration as the firms strategic focus on and allocation of export operations in certain guardedly selected export markets and market spreading as exporting to as many markets as possible with no particular focus on specific export markets. The main difference between these two strategies lies in the speed of expansion in export markets.Ayal and Zif (1979) argues that in long term both strategies end up serving almost same number of export markets. Studi es conducted by many authors (e.g. BETRO Trust Committee, 1976 Tessler, 1977, Fenwick and Amine, 1979) between 1975 and 1985 suggest market concentration strategy should be adopted because by focusing small number of markets a firm can achieve high market share resulting in long term profitability. Studies conducted by Hammermesh et.al (1978), Hirsch and Lev (1973) and Lee and Yang (1990) support market spreading strategy as it can exploit limited market share in many markets while reducing market related risk and gain higher profits .A contingency approach has been suggested by authors like Ayal and Zif (1979), Fenwick and Amine (1979) and Piercy (1982) which says that export strategy depends on company products, targeted markets and factors specific to the firm. Following table shows clear difference in two strategies as suggested by Katsikeas et.al. (2005).DBusiness Projectfrozen food eden farmliterature reviewpaintconcentration vs spreading.pngKatsikeas and Leonidou (1996) iden tified certain characteristics of the exporting organization such as project of exporting help management to minimize the perceived uncertainty associated with overseas market and operation. Marketing efforts and insurance variables which include developing market entry and customer selection criteria (Samiee and Walters 1990 Bourandas and Halikias 1991), visiting customers frequently, conducting research of export market, play crucial role in shaping behavior of the firm.A meta-analysis carried by Leonidou et. al. (2002) to identify marketing strategy elements of export performance found that market concentration strategy has a strong positive congeneric with export performance. The study further observed that export market performance is positively related to market segmentation, product quality, pricing strategy and advertising.However, Katsikeas et.al. (2005) conducted a research on 1000 British small and medium size exporting manufacturers and concluded that market spreading strategy results in long term profitability and the firm achieves valuable knowledge and skills to deal with different markets and develops a very strong sales team.Leonidou (2003) suggests that export business should be considered as overseas customer relationship management which is a process of establishing, developing and sustaining relations in export markets and this process should be monitored for its effective implementation.2.7 Determining Distribution Location unitary of the most important strategic decisions is to identify the location of depot for supplying the products to customer on time every time. When entering into new geographic location a company needs to design its complete distribution network. Companies need to improve efficiency of their logistic operations to optimize the flow of goods supplied to customers. When deciding location of distribution system a company need to give due attention to the cost of distribution system and offering a very good service to customers (Perl and Daskin, 1985). These decisions depend on number, size and location of the depot and deciding customers to be served from each depot. In distribution centre (DC) location problem two cost needs attention, one is warehousing cost and the other is distribution cost and the companies always want to find optimum balance between these two to keep costs low. Warehouse cost are divided into fixed and variable cost whereas trunking and delivery cost form transportation costs. Generally in distribution delivery cost is higher and hence lot of research is carried to develop tools to reduce these costs. In supply chain the problem related to DC are more closely related to vehicle routing problem (VRP), Location routing problem (LRP) and warehouse location routing problem (WLRP). The diagram below shows three components of delivery operation namely stem outdo, variable raceway distance and stop time.DBusiness Projectfrozen food eden farmliterature reviewpaintrouting compo net.pngThe stem distance is the total distance between depot and first customer nonnegative the distance between last customer and the depot. The stem distance is depends on the depot location. The variable running distance depends on the number of customers being served and determines the cost of delivery. Both stem and variable running distance depends on vehicle routing.Perl and Daskin (1985) define warehouse location routing problem as the problem of solving DC location and vehicle routing problem. When solving the problem one needs to give attention to various constraints like warehouse and vehicle capacity, route lengths and durations and satisfying all customer requirements. The problem is authorized by finding a optimal route to deliver the goods to customers at minimum delivery cost. Each customer is allocated to only one depot. Burns et.al. (1985) considers customer density, demand, value of items, inventory carrying cost and transportation cost per mile to solve the pro blem. They suggest designing optimal delivery regions to reduce the cost of delivery and then locate the depot. Bednar and Strogmeier (1979) , Nambiar et. al.(1981) and Barreto et.al.(2007) suggest to cluster customers together according to vehicle capacity and maximum distance constraint. Then locate the depot at a location from where all clusters can be served.