Analysis of Business Strategy Of ASDA

Introduction

The Chartered Institute of Marketing defines marketing as ‘the Management process

responsible for identifying, anticipating and satisfying customer requirements
profitably.’

As the market becomes more complex with globalization, increasing competition and
dynamic business environment, companies turn to strategies to maintain their market
share and try to explore new markets. One such strategy used is “differentiation”.

Differentiation Strategy

Definition
“Differentiation is a competitive business strategy whereby firms attempt to gain a
competitive advantage by increasing the perceived value of their products and services
relative to the perceived value of other firm's products and services”
- Charles W. L. Hill, Gareth R. Jones

Why Differentiate?
The concept of being unique or different is far more important today than it was ten years
ago. The key to successful marketing and competing is differentiation.

What does Differentiation Strategy do?

It is a strategy whereby a marketer offers a product/service as unique in industry by
proving that it provides a distinct advantage over other products by setting it apart from
other competitors’ brands in some way or the other.

There are three parts of Differentiation Strategy

Positioning: Have a simple idea that separates you from your competition.

Trust building: Have the credentials or the product/service that makes this concept real
and believable.

Awareness creation: Build a program to make your customers and prospects aware of
this difference.
(Source: http://www.scribd.com/doc/22539598/Differentiation-Strategy)

PURSUING PRODUCT DIFFERENTIATION AND COST LEADERSHIP

STRATEGIES

For years management scholars have debated whether firms can simultaneously pursue
cost leadership and product differentiation. Most firms’ strategies contain elements of
both cost leadership and product differentiation. Especially in retail industry, cost
leadership is a way of differentiation strategy to succeed against competitors.
Cost leadership results in low cost on operations and thus the company can achieve price
leadership. That is providing goods to customers at low prices thereby achieving
customer satisfaction
(Source: http://www.sm.au.edu/uploadfiles/1184016243_Differentiation.pdf)

Background and Overview of Asda

ASDA is the second largest retailer in the UK, and it has been the largest subsidiary of
the Wal-Mart family of companies since 1999.

Mission, Purpose and Values

Managers who make decisions that affect the route of an organization need to show those
choices to others. The way in which ASDA does this is through its mission, purpose and
values. These statements are designed to help stakeholders understand the direction in
which the company is heading. A mission statement sets out the long-term direction of
the organization. ASDA’s mission is: ‘to be Britain’s best-value retailer exceeding
customer needs always’. As well as having a mission statement, ASDA has a statement
of purpose. This helps stakeholders to understand why the business exists. ASDA’s
purpose is ‘to make goods and services more affordable for everyone’. ASDA also has a
series of values. These are moral statements that help to encapsulate the company’s
beliefs which then determine the decisions and actions it takes in the marketplace.
ASDA’s values are:
• Respect for the individual
• Strive for excellence
• Service to our customers.

To aid new colleagues at ASDA in understanding what the mission statement, purpose
and values stand for, they are given a 25-hour induction programme called ‘Best
Welcome’. Every year ASDA researches statements through an intranet survey.
This data helps to ensure that, at every level within the company, colleagues, teams,
departments and managers see how the mission, purpose and values should power the
decisions they take.

Timeline

1920s-1960s - ASDA roots can be traced back to a group of Yorkshire farmers who
formed Hindell's Dairies in the 1920s. The first Asda supermarket opened under the
'Queens' name in Castleford in the early 1960s.

1960s - The Reign of Queen’s Supermarkets

Peter Asquith and his brother Fred made contact with Associated Dairies and a new
company was formed... Asquith + dairies = the birth of Asda

1970s – 1980s - The Acquisition Trail

During this period, Associated Dairies embarked upon a programme of diversification;
the business now sold everything from baked beans... to motor cars!

1980s - The Foundation of George

A major success of this period was the foundation of the George Davies partnership and
the introduction of George clothing into 65 stores in February 1989.

1990s - The Norman Conquest

Archie Norman arrived at Asda in December 1991 and quickly installed the Asda Way of
Working. It provided a framework for a new organisation structure making stores the
‘heroes’ and promoting colleague involvement. It was a new dawn for Asda. Asda
rediscovered its core values and customers returned to a revitalized Asda that had gone
back to its roots.

1999 - Asda Became part of the Walmart Group in June 1999

2000s - Flexible Channels

Opening of Asda Livings and introduction of ASDA.com, financial services and new
own label brands to achieve customer’s expectations. In 2005 Andy Bond was appointed
CEO, we started operations in Northern Ireland and broke the 300 stores mark.

Late 2000s - The Digital Age

The end of the decade has seen the growth of Asda to over 370 stores, and the rapid
expansion of Asda Home Shopping. 2008 saw the launch of the non-food online business
Asda Direct which is now supported by a Collect In-Store service at over 300 stores

Asda Today

Over 170,000 dedicated Asda colleagues in more than 370 stores, 23 depots, 8 recycling
centers, Gorge house and Asda house.

Around half of total food sales at Asda are own brand.

Over 18 million weekly shoppers.

The Asda Home Shopping business has over 97% coverage in UK.

Over one million products across Asda Direct and George.com.

 Asda Statistics for Last 5 years

Market Share of Asda Sales (million)

17.2 21000

17.1 20000
Market Share (%)

17 19000

Sales
16.9 18000
16.8 17000
16.7
16000
16.6
15000
16.5
16.4 14000
2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010

Year Year

Fig 1: Market Share of Asda Fig 2: Sales in £ million

Fig 3: Number of Stores Fig 4: Average No. of Colleagues

No. of Stores Average No. of Colleagues

175000
380
170000
370
Avg. Colleagues
No. of Stores

360 165000

350 160000

340 155000
330 150000
320 145000
310
140000
2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010

Year Year

Source: Business review of ASDA 2010

Problem Statement

With the growing influence of globalization, competition within businesses and markets
is inevitable. However, with an established goal and appropriate techniques, a company
can gradually lead its way towards success. The concept of Porter’s Five Forces is used
for analyzing the problems of Asda.

Porter’s Five Forces of Analysis on Asda

Michael Porter introduced the Five Forces of Analysis that is considered as the
assessment structure of an industry. The five forces are namely categorized: competitive
rivalry, threats of new entry, threats of substitutes, power of buyers, and power of
suppliers.

Competitive Rivalry
The retail market is undoubtedly competitive and the companies, both existing and new,
are trying to blend that creates a more intensified competition. That is why many firms
need to do some intensive and little risky market strategy.
As of March 2009, Tesco is the leading retailer in UK with market share of 30.4% while
ASDA’s share is 17.5%, followed by Sainsbury’s at 16.1% and Morrisions at 11.8%.
Among its strongest contenders is Tesco, which is considered as the largest retailer in the
United Kingdom..

Fig 5: Supermarkets’ Market Share

Threats of New Entrants

 The entry has many barriers and the first one is that the retails need a lot of investment
for its sophisticated factors within the UK, along with brand development that take years
of establishment. Another is that the retail business is in an advantage in the UK which
means that there is little scope for new entrants.
Local knowledge is not enough in the retail business, which contributes another difficulty
on the side of the foreign firms.
So as such there is no threat of new entrants, but a major acquisition by foreign players
can be a threat.

Threats of Substitutes
A number of substitutes are available for consumers, principally from retailers having
different formats: food-supermarkets, local grocery stores, department stores, specialty
stores, etc
An interesting second substitute is the direct sales channel. Manufacturers like Dell who
sell directly to the consumer may be a growing rival for discount retailers.

Power of Buyer
The power of the buyers or the consumers within the industry is high especially when
there is presence of competitors that brings the same products. Another thing that the
buyers may value is the present economic stability within the country.
Supplier Power
The retailers like Asda are able to sale products at low price because of buying bulk
goods at low price from suppliers. Thus, suppliers are in the middle of the war of the
retailers. The suppliers establish relationships in different companies with the same
products. The problem arises when the supermarkets do not sell their products,
consumers will shift loyalties and this entitles the suppliers to become powerful.

Research Question
• What is the strategy used by Asda to compete with other competitors?

• Can product differentiation and cost leadership be achieved simultaneously in

retail industry?

• What are different ways of product differentiation to achieve customer

satisfaction in retail industry?

• What are the important factors which are essential for implementing product
differentiation in retail industry?

Objectives of Study
• To study the strategy used by Asda to compete with other competitors.

• To study the relation between product differentiation and cost leadership in retail
industry.
 • To evaluate the different ways of product differentiation to achieve customer
satisfaction in retail industry.

• To study the important factors essential for implementing product differentiation

in retail industry.

Findings

One of the main features Asda has been known for is its pricing strategy. Asda has being
successful in maintaining price leadership due to tie up with Wal-Mart. Asda tries to meet
or undersell local competition but maintains uniform prices except when lower prices are
necessary to meet local competition. Asda’s policy requires that store managers regulate
the retail prices charged by competing retail stores in their respective market area and
lower costs for highly competitive products without regard to the cost of individual items.
This price is often below Asda’s cost of obtaining some of these goods in highly
competitive markets. The purpose of the pricing policy of Asda is to “meet or beat” the
retail prices of competitors for highly competitive, price-sensitive merchandise; to
maintain “low-price leadership” in the local marketplace; and to “attract a
disproportionate number of customers into a store to increase traffic”.
The term known as “Every Day Low Price” (EDLP) speaks much of what Asda
is all about. This means that Asda provides goods that are of best quality at the lowest
price, always. The strap line ‘ASDA Price’ helped customers to link the store with the
low prices it offered. Thus, this would help the organization to have competitive
advantage.
With this we can say that to compete with other retailers Asda uses the policy of every
day low price.

Pursuing price leadership can be said to be one way of differentiation strategy for retail
industry. Price competition has also pushed customers to try different stores. Consumers
are prepared to travel there if they save money. Consumers like price competition, as it
means they can buy goods at low prices and save money. Thus, customer satisfaction is
achieved by innovative way of low pricing policy. But low pricing is possible only when
the organization is able to achieve cost leadership. Cost leadership is achieved by buying
goods in bulk from suppliers, thereby the cost per unit decreases and the retailer can
afford low price.

Customer satisfaction is most important criteria to achieve the mission statement of Asda
to become Britain’s best value retailer. But in order to attend this mission statement Asda
needs to have differentiation strategy apart from pricing.

Following are strategies opted by Asda in past years:

• Diverse product range: Initially, Asda had only food products on their shelves,
but later after tie up with Wal-mart it has spread its wings by including clothing,
electrical appliances, entertainment items ( music, movies, games), home & leisure
products, financial products etc.
 • Best for New: Asda is committed to offer customers new and relevant products
and great events to encourage shoppers to travel across town to visit the stores.

• No waste trips: Customers are unhappy if their weekly shopping trip is

incomplete. To ensure that there are no wasted trips Asda has invested heavily for
availability of products throughout the year.

• Happy to Help: Customers expects help in finding the products they want. Asda
recruits and train the colleagues who have the right attitude and skills to handle the
customers.

• Quality of products: In order to give assurance about the quality of products

Asda have several policies e.g. ‘100 day quality guarantee on George clothing’, ‘28
day Change Your Mind’ program for entertainment items, optical products, electronic
items, OTC pharmacy products etc.

• Local products and world foods: Customers demand for all local and world
food products is fulfilled in Asda. In Asda, customer’s demand of local products is
fulfilled by providing them with those products. Asda currently have stock of over
6000 local lines. Asda offers extensive range of Asian, Polish, Caribbean, Halal and
Oriental products in many stores catering to local communities.

• Asda Brand: Asda provides its own range of food products and general
merchandise products, which provides a better value alternative to leading brands or
solution where no brand equivalent exists. Asda has 5500 products under its brand
name.

• Digital business: Millions of people can buy their groceries online at

ASDA.com, delivered through 1100 vans, from over 160 stores nationwide to 97% of
the UK population. Through Asda Direct customers can choose items from a spread
of one million products just by clicking mouse button.
(Source: http://your.asda.com/assets/2010/4/15/2010_business_review_pack.pdf)

Factors important to implement product differentiation in Asda:

Achieving Low Cost

At Asda saving money and keeping costs low is part of their culture. ‘Saving you money
every day’ isn’t a marketing slogan; it’s the single-minded focus of everyone at Asda.
They might seem trivial but the simple things they across the business do everyday that
make difference. Things like:
• Turning lights off when they leave a room
• Recycling drinks cans and other packaging at lunch
• Keeping depot doors shut to avoid wasting energy
 • Clearing breakages straight away to avoid potential accidents and costly insurance
claims
• Asking customers if they really need a carrier bag or a hanger
• Treating company money as though it’s your own

And that’s true right across the company, whether in stores, in warehouses or in head
office.
If every one of colleagues can save £1 a day it mightn’t sound a lot – but taken across the
company and across a whole year it adds up to millions of pounds of savings that can be
passed on to customers.
There are also some big things that have the twin benefits of cutting costs and achieving
some of environmental goals.
Last year they saved £10 million by reducing packaging on their own brand goods
by 25%.
(Source: http://your.asda.com/2010/7/13/how-we-keep-our-costs-so-low)

Organizational structure

Any individual, group or organisation that is affected by the actions of a business is a

stakeholder. A company can successfully achieve product differentiation through these
stakeholders.

Internal stakeholders: Includes management and colleagues. Good strategic framework

is required to achieve product differentiation for this a proper management team is
required. In Asda under the management of Andy Bond the company has been successful
in achieving highest market share in 2009.
Colleagues are the employees that work for Asda. In order to attend more than 2.5
million customers it is very essential to have a good workforce. Asda build a good
workforce by giving them training through their program and motivating their colleagues
to put forward their ideas. For example, Asda keeps record of notified absence, absence
due to sickness, unauthorized absences. As a result of these records, Asda can recored
absence as percentage of the hours/days that could possibly been worked. Such a detailed
statistical analysis enables Asda to keep an eye on where the problem lie – with an
individual, with a particular section or company as whole. With this information it can
modify its working methodology or if sickness is due to working in stores or due to
accidents then action with respect to safety can be taken. Thus, it results in reduction in
absenteeism and thereby workforce is available to handle customers.
Another example of human resource management can be hiring people of different age
groups, skills. Succession is the way in which one person follows another into a particular
job within Asda. Asda makes sure that a person is groomed properly so that he can
replace person who is about to retire thereby saving time and money. (Source:
http://www.docshare.com/doc/116055/Human-Resources-at-ASDA)

External stakeholders exist outside an organization and some of these will be

customers, suppliers and shareholders. Each of these groups of stakeholders is affected by
the actions of ASDA. They have a real interest in the nature and types of decisions that
the company’s managers take.
Most important stakeholder with respect to product differentiation is supplier. Suppliers
at a national level are the very large providers to ASDA. Asda aims to treat its suppliers
with respect, whilst maintaining its role as the champion of the customer and challenging
the supplier to support its purpose: To make goods and services more affordable for
everyone.
Wal-Mart Europe has developed Ethical Policy, to ensure that when customers buy from
Wal-Mart they know they are buying goods produced without exploitation and in
acceptable & sustainable working conditions.

The aim of this policy is to ensure that all ASDA suppliers, both direct and domestic
should source or manufacture products under a minimum set of internationally acceptable
conditions of employment in the areas covered in the standard.
Asda is committed in maintaining Policy, which is designed to be ethical, achievable;
auditable and universal.
Suppliers to ASDA must comply with this Policy, and operate in such a way that is
consistent with Wal-Mart high standards of business practice and in accordance with the
national laws and regulations of the supplier’s country.
Some suppliers may be unable to meet all the terms within a short time or in some cases
they maybe constrained by national law. Reasonable time frame is given to supplier to
comply under the policy. If supplier fails to observe the policy, then Asda takes
corrective actions.

Corporate Social Responsibility

Product differentiation can also be achieved by playing an important role in helping the
society and environment. Asda undertake many such activities due to which customer is
satisfied with the organization. Some are as follows:
Towards people
Under the criteria of health, ASDA stores and depots were involved in raising money for
its Tickled Pink campaign, which supports Breast Cancer Care and Breast Cancer
Campaign.
Colleagues and customers acted as blood donors. ASDA encourages blood donor vans to
be set up in its car parks, ensuring the service is available to everyone in the community.
Other example is the Brake Walking Bus, a road safety charity that encourages children
to walk to school safely and teaches them about road safety. ASDA helped this cause
break a World Record when over 50,000 children took part last year.
Helping people affected with Tsunami and the Pakistan earthquake appeals.
(Source: http://www.thetimes100.co.uk/studies/view-summary--meeting-stakeholder-
needs-through-community-involvement--78-216.php)

Towards environment
Carbon Emission: Over the past two years Asda has reduced its direct carbon emissions
output by 83,000 tonnes. Overall for every £1 million sales in 2009, emitted 66 tonnes of
Carbon compared to 83 tonnes in 2007, a 20% reduction.
 Carrier Bags: When it comes to carrier bags, Asda is trying to change the habit of a
lifetime — but not at our customers’ expense.
They do this in a number of different ways: by giving away our re-usable ‘bags for life’;
by removing single-use bags from all checkouts and putting checkout operators in control
of handing them out; and by reminding customers each time they visit not to forget their
bags for life. The biggest reason people use single trip bags is because they’ve forgotten
to bring bags with them – or they’ve left them in the boot of the car.

Renewable Energy: Asda have a comprehensive energy efficiency programme, which

includes identifying renewable sources of energy to power stores and depots.
In existing stores they are on target to reduce our energy consumption by 20% by 2012
(compared to measurements taken in 2005). This has been achieved through a
programme of innovations and upgrades, such as motion-triggered lighting and state–of–
the–art boiler systems. Company aims that their estate of stores and depots to be supplied
by 100% renewable energy.

Protecting Endangered species: At Asda, customers are assured a sustainable source of

fish, and to securing a future for oceans.
Threatened species such as North Sea Cod are taken off fresh fish counters, and replaced
them with more sustainable options.
Asda is active member of the Roundtable on Sustainable Palm Oil (RSPO) – an
association created to promote the production and use of sustainable palm oil, and to
directly help protect endangered species like the orangutan and Sumatran tiger.
(Source: http://your.asda.com/sustainability-policies)

Conculsion

Through this research we understand the differential strategy of Asda in order to be

amongst top retailers in UK and to overcome competition in retail market.
The research highlights the every day low price strategy and other product differentiation
strategy to achieve customer satisfaction and fulfill stakeholders’ expectations.
Also, various factors for implementing differential strategy are studied.
Thus, we get an overview of product differentiation in retail industry.

References

• http://www.scribd.com/doc/22539598/Differentiation-Strategy
• http://www.sm.au.edu/uploadfiles/1184016243_Differentiation.pdf
• http://your.asda.com
• Business review of ASDA 2010
http://your.asda.com/assets/2010/4/15/2010_business_review_pack.pdf
• http://www.thetimes100.co.uk/studies/view-summary--meeting-stakeholder-
needs-through-community-involvement--78-216.php