Generic Strategies
Generic Strategies
(Cost Leadership, Differentiation, Focus -( DC)
(WRT Business-Level: Product Differentiation, Market Segmentation)
The way in which target consumers are classified according to their needs points to a critical difference between the two companies. Lowe’s knows that the home has greater value than that determined by property value and tax assessments. The home constitutes a personal space, a “castle, a retreat, a place to grow and a place to make your own.” Soft, warm, fuzzy, calm and secure – blue.
Home Depot’s primary consumers are men with hammers and hard-hats. They want nails, wood, Jackhammers, and drill bits. They wear bright orange safety vests and steel-toed boots. The warm, furry, blue-slippers approach can by added latter, by the female end-users of their construction projects.
Consider the toilet. At Home Depot, you may want 100 units of this particular plumbing fixture. But at Lowe’s it’s not about gallons/flush and copper pipes; it’s about a very personal addition to a clean and comfortable bathroom.
But while warmth and comfort may involve fuzzy blue slippers, Lowe’s also knows that it is the work of professional contractors and builders that makes the American Dream – the home – a reality. Therefore, Lowe’s commitment extends also to this group that, not incidentally, constitute Home Depot’s traditional target. Lowe’s has established multi-directional customer responsiveness – soft blue backed by the necessary hard orange foundation -- while Home Depot struggles to add a softer touch of baby blue to its market position.
Porter’s 5
(Power of Suppliers, of Buyers, Substitutes, Risk of Entry – Potential Competitors. Complementors.)
Efficiency Issues
Home Depot’s response to loss of market share to Lowe’s is not one of changing overall market position; for Home Depot feels that Lowe’s benefits from current economic factors that are only temporary. When the real estate bubble bursts, so will Lowe’s advantage. Therefore, Home Depot implements an increased emphasis on customer responsiveness – a factor of competitive advantage which transcends and is not dependent on temporary economic anomalies.
Additional responses by Home Depot include expansion of its consumer appliance selection to attract more “foot traffic”, a decrease in the rate of new store openings, centralizing purchasing operations, and decreasing its stock of certain merchandise. Hence, Home Depot plans to implement an organic, or internal differentiation of sections within its existing stores. That is, Home Depot expects to “squeeze” more sales out of existing stores.
4-Factors of CA
(Superior Quality, Efficiency, Innovation, Customer Responsiveness.)
Lowe’s aggressive expansion into large metropolitan areas was partially inspired and is supported by the company’s general marketing position strategy of “providing top brands and services at competitive prices.” Lowe’s, therefore, believes that its customers (1) demand top quality brands and (2) are willing to invest their time in comparing prices.
Home Depot’s expense controls and cost initiatives are it core competencies and continue to sustain its earnings. This implies that Home Depot enjoys greater economies of scale and efficiency in cost management than does Lowe’s.
Lowe’s, however, employs a centralized and integrated logistics, based not so much on economies of scale as on flexibility. Every product of every vendor is considered in determining the most efficient way of maintaining merchandise inventory. This method, through which Lowe’s expects to decrease its COGS per product, involves four distribution methods: flowing goods through regional centers, shipping by commodity-focused consolidation, reloading distribution centers, and direct shipment to stores from vendors. Accordingly, this strategy is calculated to reduce distribution costs as a percentage of COGS. The goal here is the lowest possible landed cost of every product Lowe’s carries.
Life –cycle
(Embryonic, Growth, Shakeout, Mature, Decline)
(Pressures arising from the shakeout phase would point to consolidation as means to save funds for the approaching mature phase.)
“The failing equity markets and economic uncertainty,” says Lowe’s, “have not hurt the [home improvement] business so far.” But Lowe’s retail success in the current unfavorable economy is not a paradox; for two primary reasons: (1) failing equity markets and “tangible assets”, such as real estate, are inversely related in terms of consumer demand, and (2) the lowest mortgage interest rates in 40 years has motivated the refinancing of existing real estate, with the freed funds being used on home improvement expenditures.
Home Depot, while also a supplier of home improvement related products, has traditionally targeted professional contractors and developers, both of whom are adversely affected by the slow economy. Therefore, Lowe’s segmentation strategy of targeting the single-family residential home-improvement market confers a competitive advantage to the company, while Home Depot’s traditional “ professional-contractor” push has discouraged this group of consumers. The current economy, therefore, works in favor of Lowe’s and to the disadvantage of Home Depot.
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