Whole Foods Market, Inc. is one of the largest companies in the organic food retailing industry, and it sells organic food products that help its customers maintain healthy lifestyles. Whole Foods has faced competitive pressures as increasing health consciousness among consumers has led to the skyrocketing of demand for organic foods. Porters four competitive strategies and the five forces model provide a framework for understanding how companies deal with competitive pressures (Durand, Grant & Madsen, 2017). One of Porters four competitive strategies is differentiation, and this entails providing a product or service that differs from those of competitors on an aspect that customers deem valuable. Differentiating a product or service can enable a company to charge a premium especially if customers find the aspect of differentiation valuable (Walker, Jr., Orville & Mullins, 2013). The other competitive strategy is cost leadership; this strategy entails producing a product or service at the lowest cost in an industry. Companies can reduce their production costs using, among others, economies of scale, proprietary assets, and access to key production inputs. Achieving and sustaining cost leadership can enable a firm to price its products competitively.
The third competitive strategy is focused differentiation, where a firm decides to differentiate its product or service offering to a particular market segment and excludes other segments. Focused differentiation requires careful market analysis and segmentation in order to determine the best way in which to tailor products to a particular market segment. The fourth competitive strategy is focused cost leadership, where a firm decides to attain and sustain low costs of producing products meant for a particular market segment. Focused cost leadership aims to address the price sensitivities of the customers in certain segments of the market.
The five forces model, on the other hand, shows the forces that drive industry competition; these forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitutes, and the competitive rivalry among the firms in the industry (Wheelen, Hunger, Hoffman, & Bamford, 2015). In the organic foods market in which Whole Foods Market operates, the bargaining power of buyers is low because buyers are not price sensitive, the buyer switching costs seem high, the industry products have a differential advantage, and the buyers are highly dependent on the existing channels of distribution. The bargaining power of suppliers is high because there does not seem to be substitutes for inputs, the distribution channels are strong, and there is the potential for suppliers to integrate vertically and take over some market share in the industry.
The threat of substitutes in the industry is moderate because the propensity of buyers to substitute is not high, the buyers switching costs are high, close substitutes are not readily available in the market, and the buyers deem the level of differentiation high. The threat of new entrants is moderate because the capital requirements are not high, there are no significant barriers to entry, the leading firms in the industry enjoy high levels of brand equity, the industry profitability is on a decline, and customers seem loyal to the established brands.
In the organic foods retailing industry, industry rivalry is high because firms are always seeking how to attain and sustain competitive advantage by innovating, advertising expenses are high, and the concentration ratio of firms is high. Overall, the organic foods retailing industry seems competitive when we weigh the factors that drive industry competition. Whole Foods Market has adopted the differentiation strategy that entails offering purely organic foods to all customers in the United States. The point of differentiation for Whole Foods Market is that all its food products have been grown using organic approaches and no chemicals are used to farm these foods. Technology supports Whole Foods differentiation strategy by ensuring efficient and effective procurement. Integrating technology in the procurement process has ensured that Whole Foods procures organic food products at a low cost.
Supplier management systems at Whole Foods have ensured that suppliers adhere to the high standards of quality that it has set. Technology enables Whole Foods to trace how food products move from the time they start growing in the farms to the time the farmers take those food products to Whole Foods stores. Whole Foods differentiation strategy has made the value chain long because more activities are required in order to ensure that the food products the company sells do not have inorganic additives and preservatives. The integration of information technology in procurement is instrumental in managing some of the forces that drive industry competition. For instance, the supplier management system not only makes the suppliers too dependent on Whole Foods, it also increases their switching costs. When Whole Foods suppliers are too dependent on the company, their bargaining power reduces, and a reduction in the bargaining power of buyers makes industry completion less intense. In addition, when buyers face high switching costs, they become reluctant to switch to selling to other firms, and the reluctance results in a decrease in their bargaining power.
Durand, R., Grant, R. M., & Madsen, T. L. (2017). The expanding domain of strategic management research and the quest for integration. Strategic Management Journal, 38(1), 4-16.
Walker, Jr., Orville C. and Mullins, J.W (2013). Marketing Strategy: A Decision-Focused Approach. New York: McGraw Hill
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2015). Strategic Management and Business Policy: Globalization, Innovation and Sustainability. New Jersey: Pearson Higher Ed.
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