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McBride is a leading dealer in private label household products in the UK and Europe in general. Particularly, this company is involved in developing and supplying products for marketing purposes under the firm’s different brands. These brands are commonly known as private labels, discount brands, own labels and distributor brands (McBride, 2019). More information about this company is presented in the appendix section. The firm’s environment will be studied in order to gauge its strengths and weakness in light of market opportunities and threats for an informed strategy formulation. The report focuses on household products business unit in the UK’s consumer goods industry. Specifically, the report presents an assessment of McBride’s external environment by utilizing PESTLE framework as well as Porter’s five forces model. Further, the value chain model has been incorporated to study the internal environment of this company while Porter’s generic strategy is employed in evaluating the strategy adopted by the company. Through these models, it is anticipated that McBride’s competitive status particularly in the consumer goods industry will be established. Finally, the report will then draw a conclusion and recommendations based on the analysis and findings for the purpose of enhancing the company’s performance and competitive edge.
2.0 Analysis of the External Environment
2.1 PESTLE Framework
Walden (2011 defines PESTEL model as an instrument which marketers employ in assessing their businesses as well monitor external factors that could be affected their businesses. Figure 1 below presents the factors comprising the PESTEL. This tool as pointed out by Frue (2018) is preferred due to a number of benefits. Key among these include its flexibility in aiding strategic analysis and the ability to leverage on the potential threats inherent in a specific industry. However, there are also a number of disadvantages related to this framework including the possibility of users oversimplifying the information while undertaking critical strategic and management decisions. Further, it also requires regular application and follow up taking into consideration the dynamic nature of a business external factors, meaning that more resources and commitments are required.
Figure 1: PESTLE model.
Source: (Parikh, 2017)
Concerning the political factors, the main concern in the UK is unfavourable government policies for businesses (Office of National Statistics, 2019). Specifically, companies are negatively affected by the rising minimum wages set by the government, which currently stand at £8.21for workers of 25 years and over (Peachey, 2019). The rising wages have led to increased cost of operations due to resulting pay rise. Furthermore, the prospect of Brexit has caused uncertainties to business investors, affecting the overall economy and hence general earnings of all businesses including those in the service sector (Dunn and Meyer, 2019).
On economic aspect, the UK market appears to be the most dynamic and quickly changing in the European retail environment. Perhaps, the most notable economic effect on UK’s retailers is the inflation/deflation of prices for household goods and food and the wage growth (Lampadarios, 2016). Notably, the wages in the UK are rising at a higher rate (3.4%) while the inflation is at its lowest (2.1%), as can be seen in the figure 2. This means that purchasing power of consumers and their standards of living are good, and hence they are capable of making more purchases of household goods and other products, leading to high sales performance in companies (Monaghan, 2019).
Figure 2: Inflation vs. wage growth in the UK
Source: (Peachey, 2019)
In regard to social factors, consumers in the UK are increasingly focusing on health effects of consuming various products as well as the impact of their consumption on resources and workers (Asgari, 2019). As such, companies producing household goods are embarking on sustainable practices including adhering to mandatory labels and performance standards to limit the damage resulting from their products during consumption (Mylan, 2018). This has led to increased costs of production as companies strive to conform to the consumer trends.
Technologically, the advancement of information technology is making it easy for dedicated suppliers and household product dealers to come up with innovative products and services (GOV.UK, 2019). For instance, companies have incorporated codes in their products that can be scanned by consumers through smartphones and tablets that have scanning capabilities and camera (Chandrasekaran et al., 2019). Through scanning of such codes, consumers can get more information about products such as instructions and advice on how to consume the product, data about sustainability and safety and so on and this encourage more consumption.
Environmental factors also influence the UK household products in diverse ways. The business operation and manufacturing activities are regulated under the environmental permit (Wetherly and Otter, 2018). Additionally, there is an emphasis by consumers on pollution effects of various household products which require companies to commit more funds towards research and development in order to develop eco-friendly products. This has increased their cost of production, and hence reduced financial benefits (Coxall and Hardacre, 2019).
In legal aspect, the competition law created by the office of Fair-Trading offers guidelines that business entities need to follow when doing businesses (Davis, 2011). The law also covers abuse of dominant position by outlawing anti-competitive conduct by dominating businesses in the industry (OFT, 2014). On the other hand, companies are required to provide product information in terms of mandatory data sheets and labels. This gives companies numerous obligations which lead to increased cost of operation.
2.2 Five Forces Model
Porter’s Five Forces Framework entails five forces that carry a significant influence on a company’s profitability in its industry. These forces are outlined in figure 4 below. Analysis of the five forces in Porter’s framework can enable strategists to gain an overall picture of what influences organisational profitability (Dobbs, 2014). Through this framework, it makes it possible to recognize game changing trends early enough and respond in real time so as to capture the arising market opportunities (Mohapatra, 2012). Nonetheless, Porter’s five forces assume the market structures are relatively statics which is not the case in the current highly dynamic market. Moreover, the framework only evaluates markets in terms of competition, while neglecting the fact that companies may be in strategic alliances or interlinked across a value chain as opposed to competing with each other (Hubbard and Beamish, 2011).
Figure 3: Porter’s Five Forces Framework
Source: (Ensar and Emina, 2014).
2.2.1 Threat of New Entrants
In the UK household goods industry, the threat of new entrants is low. The new entrants in this industry find it hard to penetrate the market due to highly established brand identities such as those of Proctor & Gamble, McBride, Reckitt Benckiser, and Marubeni (KPMG International, 2019). Consequently, the new entrants will find it hard to capture a significant market base due to the already existing dominant brands (Mohapatra, 2012). Furthermore, established companies hold proprietary product information such as detergent formulas, biotechnology and other ingredients that make their products appeal to the market, which further hinder new entrants.
2.2.2 Bargaining power of Suppliers
In the UK, the bargaining power of suppliers is particularly low. This owes to the diversity of suppliers who provide different inputs features which can basically perform similar functions (MarketLine, 2019). For example, raw materials such as enzymes, salts, ashes, alcohol, fragrances, dyes and water can be found naturally. Due to this, many companies in household and personal goods industry can easily secure various inputs from different suppliers. The general implication of lower supplier bargaining power is that companies can reduce their overall costs by sourcing for low priced suppliers (Lampadarios, 2016).
2.2.3 The Buyer’s Bargaining Power
The bargaining power of buyers in the UK household industry is high, owing to intense competition from such companies as Reckitt Benckiser, Henkel, Marubeni and The Nature’s Bounty, Sunrise, and BMC (Euromonitor International, 2019). A majority of buyers have enough information and they understand characteristics of products from different companies due to intense marketing by competing companies as well as information disclosure on all products through mandatory labeling (Hexagon, 2015). As such, customers are demanding the best value for the least possible price.
2.2.4 Threats of Substitute for Household Products
The threat of substitute for UK household and personal goods is usually high. This is due to existence of substitutes who compete with friendly/low prices (Euromonitor International, 2019). For instance, low cost homemade detergents and generic store brands are preferred by low income earners. Furthermore, the low switching costs in the household goods industry also mean that buyers will find it easy switching to alternative products (Mohapatra, 2012).
2.2.5 Rivalry Among existing players
The threat of rivalry in the UK household goods market is high. Firstly, competitors are diverse including established brands such as Proctor & Gamble, McBride and Reckitt Benckiser, generic store brands such as Sainsbury’s, Tesco and Aldi, and homemade detergents and powders (KPMG International, 2019). Additionally, the switching cost from using one household goods to another is low as the prices are almost the same and the results of using different products such as detergents and laundry products are more or less the same (Deloitte, 2016).
3.0 Internal environment (Value Chain Analysis)
Value chain analysis is a means of visualizing the business activities of a firm for the purpose of establishing how the business can establish competitive advantages for itself (Crane et al. 2014). Among the key advantages of a value chain analysis is that it helps in strengthening or creating a competitive edge, alongside revenue boosting (Visual-paradigm.com, 2019). Also, through analyzing the value chain activities, it becomes possible for a company to ensure that the value it is creating from the products/services exceeds the costs used in creating that value (Crane et al., 2014). However, the main drawback of a value chain analysis is that at times, it results into loss of the overall company’s vision and strategy when its core operations are broken down into segments (Ensar & Emina, 2014). The value chain model is illustrated in the following diagram;
Figure 4: The Value Chain Framework
Source: (visual-paradigm.com, 2019)
3.1 Primary Activities
McBride Plc’s primary activity is mainly product manufacturing and development of household and personal care products, of which the main products are powders and liquids/detergents. There is also logistics consisting of storage of the manufactured goods. Sales activities include marketing, research and product promotions (McBride, 2019).
However, McBride's expansive growth programs in terms of market expansion, product development and diversification acts as a disadvantage (McBride, 2019). This is because these programs usually require massive capital and budget capital expenditure. These is affecting the general profitability, compromise of the quality owing to increased production and a wider jurisdiction as opposed to a limited one, and loss of control to management and quality issues (MarketLine, 2019).
3.2 Support Activities
McBride has maintained motivated human resource personnel, alongside having strong administrative infrastructure. These have worked towards providing a safe working environment to its workers whom it also strives to motivate through various incentives. There are also extensive safety management procedures to ensure that workers are safe. Additionally, the firm’s procurement system adheres to a high-quality standard (McBride, 2019).
However, one of the weaknesses for this company is lack of sustainable supply chain since there is no permanent arrangement with particular suppliers (MarketLine, 2019). This can jeopardize the operations of the company in the event the supplies become unreliable.
4.0 Porter’s Generic Strategies
Porter’s generic strategies as illustrated in figure 6 are about gaining sustainable competitive advantages that are critical basis for a firm to achieve above average profitability within an industry (Walter, 2010). According to Porters generic strategies, a firm can basically possess competitive advantages in terms of differentiation or low cost (Tanwar, 2013). Figure 5 below presents Porters generic strategies.
Figure 5: Porters Competitive Strategy
Source: (Amadeo 2019)
A cost leadership strategy entails taking measures to become a low-cost producer and hence be able to sell at lower prices than rivals. A firm may access cost leadership through privileged access to raw materials, use of proprietary technology, use of economies of scale and other factors (Walter, 2010). Differentiation on the other hand, relates to the aspect of creating uniqueness in its industry. This can be done through the use dimensions which are favored or desired by buyers (Arthur et al., 2010). Lastly, focus as a generic strategy is about dedicating efforts on a given market segment or group within an industry and designing strategies to serve particular segment while excluding the rest. Moreover, the focus strategy carries two variants namely; cost advantage focus and differentiation focus (Walter, 2010).
McBride’s competitive strategy is differentiation focus. This strategy is implemented through offering environmentally friendly and natural range of products, which are highly sought after by consumers. For instance, the company produces laundry and hand washing liquids which are free from phosphate and are enriched with nitrogen to reduce the environment impact (McBride, 2019). As earlier noted, consumers in the UK are increasingly focusing on health and pollution effects of consuming various products. Therefore, through differentiation focus, McBride is able to appeal to a wide customer base in the UK as compared to its competitors (MarketLine, 2019). However, the product categories or segment in which McBride operates is common and hence; intense competition suffices. This requires the firm to be extremely unique in quality and pricing in order to win and maintain customers.
Analysis of the external environment indicates that the household and personal goods industry in the UK is highly competitive. From the PESTEL Analysis, the UK business environment is depicted as having high cost of operations emanating from rising wages. These coupled with the dynamic economic conditions, the emphasis on health effects of consuming various products, strict environmental and legal conditions have impaired the profitability of many businesses in the household and personal goods industry. However, technological development has facilitated reduction of operational costs and value additions while social factors are contributing favorably towards increasing the market base. From Porters Five Forces, low supplier bargaining power and threat of new entrants present an opportunity for companies. However, the current consumer has high bargaining power. There is also the threat of high substitutes and rivalry in the industry. From the value chain analysis, the company has endeavored to sustain itself and even create a competitive edge through high quality and unique products, excellent customer service as well as technological advancements to reduce the cost of operations, and raise input. However, its core weakness stems from the fact that it has no permanent arrangement with particular suppliers. Further, Porters Generic strategies indicate that McBride is applying a differentiation strategy by mainly focusing on powders and liquids. This strategy has enabled the firm to become a leader in household goods. However, considering the intense competitive rivalry that is prevalent in the product categories or segment in which McBride operates, there is the need for the firm to be extremely unique in order to win and maintain the market leadership.
MacBride should continue with the current differentiation focus strategy. This is because with the high level of competition in this industry, this business is required to embark on research and development, innovating new products and services, building economies of scale to cut costs and building capacities so as to stay on top of competitors. In addition, high bargaining power of buyers require McBride to offer more unique products through product differentiation, offering discounts, use of price strategy, and promotions among others. To leverage the impact of the threat of substitute, McBride needs to comprehend the basic needs of the customer rather than focusing on what the customer is buying. It is also critical for the business to move from being product oriented to service oriented and offer extra services that would differentiate it from competitors.
As such, McBride should continue with the differentiation focus strategy, which is certainly ideal for the business, considering the environment in which the company operates. This is because despite the diversity of business providing similar household products and services, McBride’s products will always remain unique and preferable among customers in its market niche. Furthermore, the strategy will necessitate that the growth and expansion strategies are tamed in ways that is sustainable in the long run.
To ensure that this strategy is sustainable, McBride requires partnering with other firms in the same industry rather than compete within the limited market. This collaboration is important especially in keeping McBride at par with the industry dynamics, identification of threats, understanding new developments, new marketing strategies and learning about new innovations.
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