Impact of Differentiation Strategy on Profitability and Growth

The strategy of differentiation is recommended to Next Plc. because it will help the brand charge prices according to its needs, decline competition, and create a new brand image by offering unique products. This approach will also lower customer power, reduce the threat of substitutes, and increase market share by attracting new customers. To implement this strategy, the company requires a creative team for product development, a strong sales team to promote the unique products, and a robust marketing plan. Overall, differentiation is considered a suitable and appropriate strategy for Next Plc.

Strategic
Management
1

ABSTRACT
Next plc. is which is a UK based retailer of fashion and accessories for women, kids and
men. In order to carry out the identify factors Pestle analysis model has been used and in order to
carry out its competitive industry analysis Porter 5 force model is used. On the other hand, one of
the major issue which is faced by Next Pl.c is that the changes in price of competitors forces the
company to change its price, to overcome this issue, Porter generic strategies has been used. On
the basis of SAFe evaluation technique, one of the best suitable strategy along with justification
has been recommended.
2

TABLE OF CONTENTS
(A) Introduction...............................................................................................................................3
(B) Development of appropriate strategic choice ...........................................................................4
(C) Development of appropriate evaluation criteria .....................................................................5
(d) Selection and justification of strategic choice ...........................................................................6
References........................................................................................................................................8
3

(A) INTRODUCTION
In modern era, strategic management plays a very crucial role in the growth and success
of an organizations. Further it can be defined as the process of planning, monitoring and
assessment of all those things which are essential to achieve the objectives of a company. In
simpler terms, strategic management is defined as the strategies and action plan which is
developed by managers to enhance organizations performance (Peterson and Fleet, 2004). This
report is based on Next Plc. which is a UK based retailer of fashion and accessories for women,
kids and men. At present it is having more than 700 stores and it is considered as the second
largest retailer in UK after Marks & Spencer (Next Plc, 2013). The strategic purpose of Next plc.
is to improve and develop the products offered by the brand. On the other hand, its purpose is to
focus on customer satisfaction and improving the level of customer satisfaction. Generating
higher sales and profitability is also one of the strategic purpose of the brand (Armstong, 2008).
The organization is affected by some of the internal and external factors. In terms of external
factors it is affected by political, economic, social, technological, environmental and legal
factors. In the last few years the cut down in budget and spending has forced people to lower
down their overall spending.
The economic factors such as unemployment has also decreased the sales of the brand.
The growing young customer is captured by Asos which is a major competitor of Next Plc.
further technological advancements such as online retail stores has also affects and lower down
the sales of brand (Ashill and Frederikson, 2013). The government of UK is asking Next Plc. to
reduce its carbon footprint. Along with this environmental laws has forced the brand to minimize
its waste and lower down the transport emission. In terms of legal factors the VAT increased by
UK government has resulted in creasing the overall cost of operations of Next Plc. After carrying
out porter five force analysis, it has been found that the power of customer is high as they have
wide variety of options available with them (Keller, Parameswaran and Jacob, 2011). The
supplier is also high and the thereat of new entry is very less because huge investment is required
to enter this industry. Thereat of substitute is low and threat of rivalry is very high because there
are too many firms which are competing with each other (Bryson, 2012). Therefore, it can be
stated that the brand is getting very much affected by the external environmental forces and
competition in the market.
4

Strengths
 Strong presence and market share in
UK is one of the major strength of Next
Plc.
 The customer base of Next Plc. Is very
strong
Weakness
 The prices and operations of Next Plc.
are greatly affected by external factors
 Changes in price of competitors leads
to price change of Next Plc.
Opportunities
 Opportunities to introduce online retail
store as most of the retailers have
already started operating via online
store
 opportunities to introduce unique and
different products
Threats
 One of the major threat which has been
faced by the brand is high level of
competition in industry where it is
operating
 High power of suppliers and buyers is
also a threat
(B) DEVELOPMENT OF APPROPRIATE STRATEGIC CHOICE
In order to grown and achieve its strategic purpose Next Plc. Is available with a number
of strategies. The strategy will help Next Plc. In getting competitive advantage over other market
players and to grow in effective manner. The generic strategy of porter are mentioned below as:
Cost leadership strategy-
In this strategy the brand will be required to become a low cost producer by lower down
its entire cost of production. Further Next Plc. Will be required to sell its products either at
average price in industry or a price lower than the average price. The benefit of this strategy is
that at the time of price wars the brand will be able to earn adequate profit by lowering its cost
of production. On the other hand, its rival firms will start suffering from loss in the same
situation (Nandakumar, Ghobadian and O'Regan, 2011). Cost can be lower down by dealing with
supplier and improving the efficiency of the entire manufacturing process. It can be also lower
down with the help of lowering down the unnecessary expense and materiel cost. While adopting
this strategy the brand will require to make sure that it has effective channels of distributions.
Differentiation strategy-
5

Next Plc. Can also adopt the strategy of differentiation where it will be required to
develop products which can unique and different from what other market players are offering.
With the help of this strategy the brand can also charge high price for its products as it is not
offered by any other retailer and Next Plc. will become its single seller. On of the other hand at
the time of using such strategy the brand needs to developed highly creative and skilled
development team (Global strategic framework, 2013). The sales team of Next Plc. will be
required be very active so that they can communicate the benefits and attributes of products.
Focus strategy –
In this strategy the brand will be required to narrow down its market segment and need to
focus on satisfying the need and demand (Parvinen, Tikkanen and Aspara, 2007). At present
Next Plc. is offering products and services for the entire market and thus it is facing heavy
competition form other market players. It can narrow down its market segment and can deliver
products to particular segment such as Men, women, kids or to a particular age group. One thing
which the brand will require to ensure is that it is offering wide range of products to a narrow
market segment.
From the above stated strategy any one of the strategy can be used by Next Plc. In order
to achieve its strategic purpose. It is also required by the brand to carry out the evaluation of each
and every strategy before selecting and implementing any of them.
(C) DEVELOPMENT OF APPROPRIATE EVALUATION CRITERIA
In order to evaluate any kind of strategy one of the best option is SAFe evaluation
techniques which consist of certain parameters to evaluate the strategy. The parameters are
suitability, acceptability and feasibility. Every organization use strategy to overcome the issues
faced and to achieve its aim and objectives (Blumentritt, 2006). On the basis of SAFe evaluation
technique the parameter of suitability checks whether the strategy adopted by the firm has
addressed the issues or not. On the other hand, acceptability means whether strategy has been
adopted by the stakeholders. Feasibility it means that whether the strategy will work in practical
or not. All these factors are essential for evaluation. The SAFe evaluation of three strategies are
mentioned below as:
Cost leadership strategy-
6

one of the main issue which has been faced by Next Plc. is related to prices. The
competitors are driving the price of the products which somewhere or the other affects operations
of the brand. This strategy cannot be termed as suitable as it will only lower down the cost of
operation and is not the solution of the issue. Further this will not be adopted by stakeholders as
it will also lower down their profit margin (Forman and Hunt, 2005). In terms of feasibility, it
can be stated that this strategy is possible to implement practically.
Differentiation
As per this strategy, Next Plc. Will be required to manufacture and offer unique products
to the people in market. This strategy is suitable as it is addressing the issues faced by the brand
in most appropriate manner. Unique products will eliminate the brand from market competition
and will also help in charging prices according to its needs. On the other hand, the prices change
of competitor will not have any kind of effect on the operations of Next plc. As it is offering
unique and different products (Kotler and Armstrong, 2005). This strategy can be also termed as
acceptable as the stakeholder wont have any kind of difficulty in accepting this strategy. The
reason behind this is that they will be able to generate higher profit with this strategy. Along with
this, the strategy is feasible with the help of research and development team.
Focus
It is the strategy in which Next Plc. Will be required to narrow down its present market
and focus on a specific market segment. This strategy is also not suitable as it wont address the
issues which the organization is facing. Even if the company lower down its market, it will be
require to change its prices whenever its competitors are changing them (Wit and Meyer, 2010).
For instance if any of the rival of Next Plc. Lower down the price of one particular segments
then the brand will also require to lower down its price of the segment in which it is operating.
Further this strategy may or many not be accepted by stakeholders of Next Plc. In this strategy,
the brand will try to focus and satisfy the need of particular group in market. It may happen that
the stakeholders expectation are not satisfied when the brand is narrowing its offerings. The
strategy is feasible as it can easily work in practical life.
(D) SELECTION AND JUSTIFICATION OF STRATEGIC CHOICE
The best and most suitable strategy for Next Plc. is the strategy of differentiation in
which the company can manufacture and deliver some unique products. Out of the three above
7

stated strategies it is the most suitable one because it will help the brand to grow in market even
in the stage of tough competition. One of the major issue which is faced by Next Plc is regarding
pricing, further it has been identified that most of the time the competition drive the price of
products. For example if any of Next Plc. Rival has adopted for a low price strategy then the
brand is also required to lower down its prices (Armstong, 2008). It has a direct impact on the
profitability of the company and creates barriers in its growth and development. One of the main
reason why the strategy of differentiation is recommended to the brand is that it will help in
charging the price as per need and requirement. When Next Plc. Will offer unique products then
it can easily charge prices according to its needs. On the other than, the level of competition will
also decline to a certain extent as those products are not offered by any other market player.
Most of the businesses in retail sector are offering almost same kind of products and due
to this reason now people are having wide variety of options available with them (Bryson, 2012).
By offering unique products a new brand image can be created by Next Plc. and the choices of
costumers can be restricted to a certain extent. Another reason why the strategy of differentiation
is recommend is that it will help the brand to lower down the power of customer which is very
high at present. When the brand will start delivering unique products then the customer choices
will automatically lower down. Along with this, the threat of substitute will also lower down the
as people in market will get attached to the unique products offered by Next Plc. Therefore, it
can be stated that the strategy of differentiation is very beneficial for the brand as it will assist in
overcoming all the major problem or issues faced. Along with this, it will also support in
attracting new customers and increase its present market share. At the time of using or
implementing this strategy, the company is required to develop a creative and skilled team of
development which can help in developing such as product which is not offered by any other
party. On the other hand, a strong sales team will be also needed which can go in the market and
make the people aware about the special or unique product which offered. Thus, it can be stated
that the strategy of differentiation will be the most suitable and appropriate strategy.
8

REFERENCES
Books and journals
Armstong, M., 2008. Strategic Human Resource Management: A Guide to Action. 4th ed. Kogan
Page Publishers.
Ashill, J.N. and Frederikson M., 2013. Strategic marketing planning: a grounded investigation.
European Journal of Marketing. 37(3/4). pp.430 – 460.
Blumentritt, T., 2006. Integrating strategic management and budgeting. Journal of Business
Strategy. 27(6). pp.73–79.
Bryson, M. J., 2012. A strategic planning process for organizations. Long range Planning.
21(1). pp.73-81.
Forman, H. and Hunt, J. M., 2005. Managing the influence of internal and external determinants
on international industrial pricing strategies. Industrial Marketing Managemnet. 34.
pp.133-146.
Keller, K. L., Parameswaran, M. G. and Jacob, I., 2011. Strategic brand management: Building,
measuring, and managing brand equity. Pearson Education India.
Kotler, P. and Armstrong, G., 2005. Principles of Marketing 11th Edition. New York: McGraw-
Hill Publishing.
Nandakumar, K. M., Ghobadian, A. and O'Regan, N., 2011. Generic strategies and performance
–evidence from manufacturing firms. International Journal of Productivity and
Performance Management. 60(3). pp.222–251.
Parvinen, P., Tikkanen, H. and Aspara, J., 2007. Corporate strategic marketing: a new task for
top management. Business Strategy Series. 8(2). pp.132–141.
Peterson, O. T. and Fleet, V. D. D., 2004. The ongoing legacy : An updated typology of
management skills. Management Decision. 42(10). pp.1297–1308.
Wit, B. D., and Meyer, R., 2010. Strategy: Process, Content, Context. Cengage Learning.
pp.285- 288.
Online
Global strategic framework. 2013. [Online]. Available through: <http://assets.coca-
colacompany.com/61/bb/cbc4797f40e09f7d34b8142d5e99/global-diversity-strategic-
framework.pdf>. [Accessed on 2nd December 2015].
Next Plc. 2013. [Online]. Available through: <http://www.nextplc.co.uk/>. [Accessed on 2nd
December 2015].
9