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Table of Contents
1.0

Introduction .................................................................................................................................. 1
1.1 Overview ............................................................................................................................ 1
1.2 Purpose and Scope.............................................................................................................. 2

2.0

Cost Leadership of CKS Supermarket .......................................................................................... 3

3.0

Differentiation of Seven Eleven ................................................................................................... 6

4.0

Focus Strategy of Bestermart Point .............................................................................................. 9

5.0

Porters Five Forces Model ........................................................................................................ 12


5.1 Bargaining Power of Buyers ............................................................................................ 13
5.2 Bargaining Power of Suppliers ......................................................................................... 13
5.3 Bargaining Power of Substitutes ...................................................................................... 14
5.4 Bargaining Power of New Entrants .................................................................................. 14
5.5 Bargaining Power of Other Rivals ................................................................................... 14

BIBLIOGRAPHY ................................................................................................................................. 15

BBPS4103 STRATEGIC MANAGEMENT 1

1.0

Introduction
1.1

Overview

Competitive advantage is defined as the ability of a firm to outperform its industry


that is to earn a higher rate of profit than the industry norm (Besanko et al., 2006:
626). It is a situation when a firm earns a profit that exceeds the average for its
industry, thus having a competitive advantage over its competitive rivals (Lamb,
1984). Therefore, firms strive to have sustainable competitive advantage through the
application of business-level strategy.
Business level strategy is an integrated and coordinated set of commitments
and actions that the firm uses to gain a competitive advantage. This is achieved
through the exploitation of core competencies in a specific product market. In
selecting a business level strategy, the firm determine who it will serve (the
customers), what needs those target customers have that it will satisfy (products and
services) and how those needs will be satisfied (marketing). Business level strategy is
also concerned with a companys position in an industry, relative to rivals and to the
five forces of competition (customers, suppliers, substitutes, competitors, new
entrants). It is imperative for firms to choose an appropriate business level strategy to
position themselves favourable and to establish a competitive advantage over industry
rivals. Basically, there are four business level strategies (Figure 1).

Figure 1: Four Types of Business-Level Strategy

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Firms may choose any one of the four strategies based on the source of
competitive advantage i.e. the uniqueness or cost, and breadth of competitive scope
either broad or narrow. A company choosing to compete across a broad market
determines that it should compete in a number of customer segments. This is achieved
through offer of unique products called a differentiation strategy or by establishing a
low-cost position and providing standardized products at the lowest competitive price
called a cost leadership strategy. In a narrow customer segment, focus strategy is
employed either using a focused differentiation strategy (few segments, unique
products) or a focused cost leadership strategy (narrow segment, standardized
products at the lowest competitive price). Figure 2 presents the differences in these
strategies.

Figure 2: Comparison of the Four Types of Business-Level Strategy

1.2

Purpose and Scope

The purpose of this paper is to discuss about business level strategy of three retailers.
This paper also shows the use of Porters Five Forces Model as a means to seek the
core advantages or the competitiveness in an industry.

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2.0

Cost Leadership of CKS Supermarket

CKS

Supermarket

is

large

scale

retailer

operating

in

Sabah.

It

uses

hypermarket/supermarket concept which provides a large collection of products to the


consumers at a competitive low price compared with other retailers.

Figure 3: CKS Supermarket

CKS Supermarket uses a cost leadership strategy which means that it uses the lowest
cost of operation in the industry. The cost leadership is driven by its efficiency, size, scale,
scope and cumulative experience. In cost leadership, the scale of production is exploited
which is done in CKS through the marketing of products using a supermarket concept, a large
retailing outlet which can offer customers variety and bulk of products. In general, cost
leadership strategy emphasizes on the provision of products and services at the lowest cost
per unit within an entire market.
CKS Supermarket uses the cost leadership strategy as an integrated set of action
taken to provide goods and services with features that are acceptable to customers at the
lowest cost, in comparison to other retailers. CKS Supermarket creates its competitive
advantage by offering the lowest cost in its industry. It is competitive with other retailers
such as G-Mart, Giant and Servay.

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In order to sustain its competitive advantage, CKS Supermarket exercises a stringent
cost control through the use of local suppliers and its own supply arm to ensure that
products are acquired at low price and able to be sold at competitive price to customers. It
also employ cost control in terms of its strategy to employ workers who are willing to work
long hours for low salary scale. Services and operation workers such as cashiers, sales
attendants and other support staffs work on a 10-hour shift every week with one day off per
week at an average salary of RM800. The staffs are also hired for over time at a rate of
Rm2.50 per hour. The low labour cost means lower production cost (Aulakh et al., 2000).
The company also strives to supply a standard no-frills, high volume product at the
most competitive price to customers (Li & Li, 2008). Therefore, CKS products come in
standardized products to offer convenience to customers which are available on single unit
or in bulk (Figure 4).

Figure 4: Milo in Different Packaging oOffered at CKS Supermarket


CKS Supermarket also create values to its customers by providing superior, quality,
innovative products, brand image and good services. Thus differentiate the product so that
they are more competitive than others (Hutchinson et al. 2007). Hence, CKS Supermarket
provides customers with a wide range of product selection at a competitive price that comes
from various brands.
In addition, CKS Supermarket is competitor-oriented rather than customer oriented.
Hence it requires a strong focus on the supply side and not on the demand side of the market
(Frambach et al., 2003). Therefore, CKS Supermarket is supported and strongly backed by
its own subsidiaries to supply products to the supermarket.

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CKS Supermarket also achieves competitive advantage by emphasizing in aggressive
strategies of efficient-scale facilities, vigorous pursuit of cost reductions from experience,
tight cost and overhead control, avoidance of marginal customer accounts, and cost
minimization in areas like research and development (R&D), services, sales force,
advertising, etc (Porter, 1980).

Figure 5:
Economy of Space with Efficient Arrangement of Space to Ensure
Customers are Offered with a Large Line of Products with Varied Price Choices

CKS Supermarket operates in a wide market and sustains its competitiveness in the
stiff retailing industry through the right application of a cost leadership strategy.

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3.0

Differentiation of Seven Eleven

Seven Eleven or 7-Eleven is a part of an international chain of convenience stores, operating


under Seven-Eleven Japan Co. Ltd, which in turn is owned by Seven & I Holdings Co. of
Japan. This is a business operating as a franchise system. Globally, it is the largest chain store
with more than 38,000 outlets operating throughout the world, to an extent, surpassing the
previous record held by McDonald Corporation in 2007 by about 1,000 retail stores. 7-Eleven
stores are located in eighteen countries, with its largest markets in Japan, the United States,
Canada, the Philippines, Hong Kong, Taiwan, Malaysia and Thailand. 7-Eleven Corporation
targets to open another 30 more new stores in 2011.
Malaysias 7-Elevens are owned by 7-Eleven Malaysia Sdn Bhd, which currently
operates 1,115 stores nationwide as of September 2010. 7-Eleven in Malaysia was
incorporated on June 4, 1984 by the Berjaya Group Berhad. The store is recognized today as
the undisputed market leader in convenience store chain landscape in Malaysia.

Figure 6: The 7-Eleven Store

7-Eleven uses a differentiation strategy that means the creation of a marketing


position being perceived as unique industry-wide and can be sustained in the long run (Porter,
1980). This is achieved using design or brand image, distribution and others (Frambach et al.,
2003). The store also creates customer value by offering high-quality products supported by
good service at premium prices. The store also aims to create a superior fulfilment of
customer needs in several product attributes to develop customers satisfaction and loyalty
(Morshett et a., 2006). Acquaah & Ardekani (2006) explained that competitive advantage
over rivals is attained due to te perceived uniqueness of the offered products and services.
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Porter (1980) stressed that competitive strategies require development of attributes that
characterize a firm and differentiate the value it creates which is different from to its
competitors.

Figure 7: A Popular Product at 7-Eleven Store: Slurpee

7-Eleven provides products and services that are mostly needed by customer.
However, 7-Eleven also offers private label products including Slurpee, a partially frozen soft
drink introduced in 1967 and the Big Gulp, introduced in 1980 that packaged soft drinks in
large cups ranging in size from 20 to 64 US fluid ounces. In addition to Slurpee and the Big
Gulp, 7-Eleven would come to own or operate several brands of food and concepts including
Movie Quik, an in-store video-rental. In 2007, 7-Eleven took opportunity from the popularity
of The Simpsons Movie with the creation of Kwik-E-Mart where fans can purchase themed
merchandise from the store.

7-Eleven regularly conduct market research to understand current trends of consumer


patterns that the presentation of products and services in their stores closely match to items
that are frequently needed by consumers. Therefore, even with limited assortment of products
and services, those that are sold in the store have high demand 24/7 by consumers. They also
market to niche market such as online gamers (for example Ran online) and sold merchandise
related to the games to these players.

Most often, differentiation strategy is opted by chain store operations such as 7Eleven which is one of the popular franchise systems in Malaysia. The use of differentiation
in their retail business is closely related to the fulfilment of specific needs of chosen customer
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segments (Morshett et al., 2006). Hence, 7-Eleven appeals to the busy executives, those who
are busy that dropping at the store at 3 am is normal to them. Most 7-Eleven stores are
located in busy city areas, usually at the junction as well in heavily populated areas. They
offer an alternative choice to buy a wide range of products with small packaging size as
means of convenience and ease of access during off-business hours of other retail shops such
as supermarkets and sundry shops.

7-Elevens vision is to be recognized as a leader in providing time-conscious


consumers with a full range of products and services that meet their ever-changing daily
needs The value proposition of 7-Eleven as shown in their vision, mission and core values
statements implies that 7-Eleven knows what time-conscious consumers want and therefore
are catering to their current needs. They also value their internal customers (the workers) as
well as external customers, together with suppliers and franchisees. Franchise system success
is greatly influenced by the amount of support provided by the franchisor to their franchisees.

Through the use of a differentiation strategy, 7-Eleven is assuredly competitive in its


market and considered to be one of the stores usually frequented by customers.

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4.0

Focus Strategy of Bestermart Point

Bestermart is a local grocery store located in Penampang. It is a small retail shop, hence
operating in a narrow market. The shop is situated in Donggongon Point and is one of the
popular grocery stores patronized by the students from the nearby college, customers from
other offices in the vicinities and travellers going to Tambunan/Keningau. The shop offers
many grocery items such as sundry goods, stationeries, refrigerated drinks and over-thecounter goods. It is open on a daily basis with operation time from 10 am to 10 pm.

Figure 8: Bestermart Point Retail Outlet

Grocery store such as Bestermart is part of the retailing industry in Malaysia.


Retail trading normally consists of a wide variety of goods and service ranging from
household items to food and accessories (Lim et al., 2003). The retail industry is a
combination of big and small players in the market. Small sundry shops like
Bestermart Point are facing stiff competition from bigger players such as
supermarkets and hypermarkets which can accommodate more goods and offer goods
at competitive prices. Therefore, Bestermart needs to employ a focus strategy
operating in a narrow market.

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Bestermart uses a focus strategy using both cost-leadership and differentiation


strategies simultaneously. This combination of both strategies has been shown to be
viable and profitable (Kim et al., 2004). Its use helps to minimize the vulnerability
due to reliance on cost-based advantages only. Therefore, focus strategy achieve both
differentiation and low price compared to competitors. This is successful provided
that the company develops the ability to deliver enhanced benefits to the customers
with low prices while attaining enough margins for reinvestment to maintain and
develop bases of differentiation.

Figure 9: Product Offers Meeting Customers Needs

Bestermart uses a focus strategy to gain benefits from both strategies of cost
leadership and differentiation strategy. Differentiation enables the firm to charge
premium prices and cost leadership enables the company to charge the lowest
competitive prices. Therefore, the retail shop can achieve competitive advantage by
delivering value to customer based on product features and low price.
It targets a particular buyer, group and segment of the product line and
geographic market. The store is located near the vicinities of a college and several
offices, quite far from any pharmacies. In order to fulfil customers needs, the store
also provides over-the-counter medicines as this is also one of the popular items
demanded by customers.

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Figure 10: Over-the-Counter Medicine Products


Being a small store with limited space, the retail shop offers products that best
match the needs of the customers that patronize the shop. It is also able to price some
items at a premium since it satisfies the desires of the buyers in terms of value
proposition. Therefore, it may offer drinks products at a higher price, about 10 to 20
cents more than what is offered in supermarkets.

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5.0

Porters Five Forces Model

The Porters Five Competitive Forces Model is based on five factors contributing to the
competitiveness of the industry. In this case, the industry is the retailing business, specifically
convenient stores like 7-Eleven. Figure 1 presents a summary of Porters model for the
retailing industry seen from the perspective of a convenient store like 7-Eleven in Malaysia.
Substitute Products and
Services
Home shopping network
(TV)
Electronic shopping
(Internet)
Telemarketing
Purchasing clubs
Door to door sales

Bargaining Power of
Suppliers
US product
manufacturers
Foreign
manufacturers
IT product and service
suppliers
Business partners

Intra-Industry Rivalry
Big retailers e.g. Giant,
Tesco, Carrefour, Servay
Other 24-hr outlets
Other small retailers shops
Other attractive retail
franchise system

Bargaining Power of
Buyers
Consumers in
metropolitan and urban
areas of Malaysia
Consumer in suburban
areas of Malaysia
Tourists from Western
countries & others
Corporate buyers

Potential New Entrants


Foreign general
merchandiser and distributor
Established retailer shifting
strategy to discounting and
megastores

Figure 11:
Porter 5 Forces Model for Retailing Industry from the perspectives of
Convenient Store

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5.1

Bargaining Power of Buyers

7-Eleven stores are available in almost all metropolitan and cities in Malaysia as well
as in small townships and populated suburban areas. The customers or market
segment of this convenient store are local residents living in the areas or those
working in the vicinity who need convenient products with high standard of quality
and they are willing to pay a premium price for that.
7-Eleven is an international franchise with chain stores in numerous countries
that western tourists and other foreign tourists such as from Japan, Taiwan and Hong
Kong feel comfortable to patronize the shop. These tourists would feel at ease and
familiar with the store ambience, its products and services than going into other local
convenient or small retail stores in this country.

5.2

Bargaining Power of Suppliers

7-Eleven is a franchise system promoting products developed from US and Japan.


These products are supported with high technology and able to project a high standard
of quality that they are valued for their features rather than their price. Other products
are from foreign manufacturers, also with high standard of quality. In addition, 7Eleven in Malaysia also use local brands and popular products such as Maggi from
Nestle (Malaysia). 7-Eleven also forms partnership with other businesses that use
their outlets to market their products or services such as online games companies (Ran
Online), finance firms (AmBank ATM machine), etc.
As a franchise system, the suppliers has been established for the franchisee,
whereby bargaining of prices has been settled at the corporate level (between 7Eleven Malaysia Sdn Bhd) and the suppliers. Individual 7-Eleven outlets owned by
franchisees have no worries to find local suppliers as these have been suggested by
the franchisor, which is a larger corporation with more effective bargaining power
with the suppliers.

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5.3

Bargaining Power of Substitutes

7-Eleven is one of the many types of retailing outlets in a highly competitive retailing
industry. It offers many convenient products such as cigarettes, communication
network prepaid reload, contraceptives for males, newspapers and drinks. Other
specialty products most favoured by customers are like the Slurpee drinks. In
addition, there are other substitute products which may become threats to 7-Eleven
such as home shopping network (through TV marketing), electronic shopping
(through Internet such as eBay, www.lelong.com.my), telemarketing, purchasing cubs
and door-to-door sales.

5.4

Bargaining Power of New Entrants

The retail industry in Malaysia is a growing business with many innovations being
introduced in the market. Potential new entrants may include foreign general
merchandisers and distributors. These new entrants use numerous entry methods such
as franchise, e-commerce business models or brick-and-mortar business outlets.
Although the market is competitive but the attractiveness of the market is pulling
more entrants into the market.

5.5

Bargaining Power of Other Rivals

The retail industry is highly competitive with large scale retailers such as Giant,
Tesco, Carrefour, Servay, Bestmart, CKS, Mydin, and many others. Other than 7Eleven, there are also other convenient shops in the market like Orange which is
slowly gaining popularity. In the retail franchising sector, there are other offers to
potential entrepreneurs and businesses with competitive offers.

2,918 WORDS

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