HC3141 Strategic Management Activities of DanMurphys: Assessment 2 Answer
INTERNATIONAL STRATEGIC MANAGEMENT
1.0 Introduction- DanMurphy’s and the industry
The assignment aims to analyse the strategic management activities of DanMurphy's. Hence, the present study emphasises on investigating the main micro and macro environmental factors affecting the business of the selected organisation. Then, it examines the competitive advantages, generic strategy and growth strategy of DanMurphy’s. After the overall analysis, recommendations for future strategic direction are provided.
DanMurphy’s is a liquor-retailing organisation of Australia that offers the highest variety of liquors at the best prices. It operates under the Woolworths Limited. Daniel Francis Murphy founded the company in 1952 and sold it to Woolworths in 1998. It offers 3500 alcohols comprising wins, beers and spirits in its very store and 5000 products online. The company stocks crypt release wines, imports wines, and other spirit products directly from different parts of the globe. In each store of DanMurphy's, there is an experienced team and knowledgeable product experts, who love to offer help and recommendations for creating an unforgettable experience for the customers. The company has a presence in New Zealand, too (DanMurphy’s, 2019a).
The last five years were challenging for the Australia liquor industry due to increased consciousness of people toward their health, reducing alcohol consumption consequently and intensified market competition. Although, the growth opportunity is there for the industry due to rising demand for exceptional and more excellent value beverages. Hence, revenue is projected to increase by 3.3% per year. The sector created 30082 employment and 2322 businesses in the country (IBISWorld, 2019).
2.0 Macro and microenvironment
SWOT is a useful framework for analysing micro-environmental factors of a company by identifying its key strengths and weaknesses as well as the opportunities and threats within the marketplace (Hill et al. 2014).
|Strengths- ||Weaknesses- |
|Opportunities- ||Threats- |
Table 1: SWOT analysis of DanMurphy’s
(Source: IBISWorld, 2019)
PEST is a useful technique for finding out the most influential factors in the external environment have a direct impact on the business of an organisation. PEST stands for political, economic, social and technological (Wheelen et al. 2017).
|Political||Australian political condition is stable, the regulatory system is transparent, and the governance framework is sound that supports the financial flexibility of the nation. In terms of ease of running a business, Australia gained the 15th position among 190 countries (Austrade, 2019). Hence, for DanMurphy’s, doing business in Australia under the favourable market, legal an political environment is reasonable.|
|Economic||Australia is one of the wealthiest countries of Asia Pacific. It has experienced economic growth for more than two decades. The current GDP of the nation is $1.2 trillion, with 2.3% growth and $50,334 per capita (Heritage, 2019). The growth rate of GDP increases disposable income and purchasing power of the people that are positive for the business of DanMurphy's.|
|Social||In Australia, the heavy drinkers consume over half of the total alcohol. They tend to drink inexpensive, cask wine and beer. They are the middle-aged people that are harmful to their health, family and communities (ScienceDaily, 2019). For addressing this and showing responsibility toward the society, DanMurphy's needs stop offering cheap alcohols; instead, it should focus on retailing high-quality liquors to conscious consumers.|
|Technological||In Australia, a growing propagation of alcohol apps has been developed for facilitating customers selecting the most exceptional wine by considering the ratings, copying a sommelier by taking and recording notes and more (Drinkscentral, 2019). DanMurphy's needs are adopting the new technology and the app for gaining customer attention and satisfaction.|
Table 2: PEST analysis of DanMurphy’s
(Source: ScienceDaily, 2019)
3.0 Competitive advantage of DanMurphy’s
As per the viewpoint of Cegliński (2016), competitive advantage is gained when a company build or obtains a group of traits that enable it to outperform its rival companies. It means when activities of an organisation are more lucrative comparing to its competitors.
Australian consumers of alcohol prefer buying directly from the liquor stores instead of purchasing from bars or other certified places. In 2016, they spent $14.5 billion on liquor. DanMurphy's gained an excellent position from the rest of alcohol retailers. It accounted for approximately 30% or $4.3 billion in 2016 increased from 25.4% in 2015. On the other side, the market share of Coles Group declined to 15.5% in 2016 from 15.9% in 2015. Thus, the leading position of DanMurphy’s gives the company a competitive advantage over its rivals like Coles, Aldi and other small retailers (FMCG, 2019).
Figure 1: Market share of DanMurphy’s’s parent company, Woolworths
(Source: Roy Morgan, 2019)
Another source of competitive advantage of the company is its lowest-price strategy. Being in a dominant position coupled with best-selling price makes its location even stronger within the industry. The range of liquor products it offers to its customers that too at a competitive price, helps in driving the market share of DanMurphy’s significantly. Further, the company has a team of experienced product experts, who focuses on providing excellent customer experience by listening to customer needs and offering them products accordingly. Using the program named ‘Voice of the Customer’ throughout the brands, the Support Office and store team obtain regular customer feedbacks. It facilitates the firm shaping its offerings regularly for improving customer experience and gaining loyalty. Additionally, speeding up innovation in the liquor business, Woolworths introduces new product range successfully based on the demands of consumers (Woolworthsgroup, 2019).
4.0 Generic strategy of the company
Michael Porter has provided a category structure comprising three general forms of policy, which are mainly used by companies for achieving and managing competitive advantage. These strategies are explained with two dimensions, including strategic strength and strategic scope. The necessary power comes from product cost efficiency and product differentiation, whereas vital range looks at the size of the target market (Tanwar, 2013).
Figure 2: Porter’s generic strategy
(Source: Tanwar, 2013)
For maintaining its competitive position in the market, DanMurphy’s follows cost-leadership and product differentiation strategies of Porter. The company is known for its low-priced liquor is available in all ranges including beer, wine and others. It is one of the reasons for the continuously rising market share of DanMurphy's in the retail liquor industry. Offering liquor at the lowest price makes buyer thinking that they are receiving value for their money, as besides low price, the quality and range of the products are also extensive (DanMurphy’s, 2019a). The company has increased its customer base by 4% by September 2018 (Roy Morgan, 2019). Thus, the firm finds and uses all the bases of cost advantage for becoming the lowest-cost producer and maintaining the cost-leadership strategy.
Differentiation involves seeking a way for becoming unique within the industry besides some product dimensions that are highly valued by the customers (Tanwar, 2013). The Woolworths group encourages innovation for offering differentiated liquor products to the customers of DanMurphy's. It enables the firm offering unique products to the consumers and gaining their satisfaction. For example, the Canadian Whisky is a unique whisky provided by the organisation, as it is aged by the used barrels and not using virgin barrels that are generally used for ageing whisky. Therefore, the Canadian whisky is softer and less belligerently acceptable (Danmurphys, 2019b).
5.0 Growth strategies of the firm
The Ansoff matrix suggests growth strategies that contribute toward the company's growth, notably excluding diversification. The model includes four plans for growth comprising market penetration, market development, product development and diversification. Diversification is the riskiest strategy that can limit company growth and hence, needs to be avoided, as it involves offering new products into new markets (Hussain et al. 2013).
DanMurphy’s apply the market penetration strategy for giving a fierce competition to the rivals by offering its existing product range in its current market. The aim is to increase market share, and the company is doing it successfully. According to Hussain et al. (2013), market penetration is the most comfortable option for companies to grow their businesses. The company improves its performance either by increasing the selling quantity to the existing customers or by selling current products to new customers.
DanMurphy's rises its income by repositioning and promoting the products. Over the last year, the company has combined the online and in-store purchase data and provided every customer with a tendency score for a specific product range and segment, which consider factors such as price elasticity, purchase volume and frequency. It helps the firm targeting the right customers at the right time and promoting the right products to them by sending personalised emails. It boosted the firm rising its open rate by 53% approximately and increased revenue by 25% (Cooper, 2019).
DanMurphy's is going to open its new store in the Northern Territory, adopting the market development strategy. Applying this strategy from the Ansoff matrix, the firm attempts to grow its business by offering its existing wide range of products to the customers of a new market. Although the company took the decision earlier, the delivery of the application to the NT Liquor Commission was delayed. However, after months, now it is delivered, and after scrutinising, the decision will be made whether DanMurphy's can open the superstore in Darwin Airport zone (Abc, 2019). If DanMurphy's get the permission of building the superstore in the Northern Territory, the firm will be able to increase its market share, revenue and customer base in the new region. It requires more assets that DanMurphy's has. Using its assets and a wide range of products, the company can grow its business positively into the new regions successfully.
For making the market development strategy that DanMurphy’s has adopted for building a new superstore in the Darwin Airport area prosperous, first, the company needs developing a relationship with the local people. This is because alcohol consumption raises social problems such as alcohol abuse, accidents and more that create public objection. The objection can come from the hospitality industry of the region the native people with safety concerns and other indigenous communities. The company is needed to overcoming these objections and gaining their support by responding to the interests of the public appropriately. The firm can show the positive sides of opening the supermarket to the people. The store can give job opportunities to the indigenous people and thus, can help them improve their living condition. Moreover, the firm can tie up with the hospitality sector, so that more effective service can be provided to the customers and the support of the hospitality sector can be gained. Moreover, DanMurphy’s can assure the local people by setting a limit of selling of alcohols to people and not selling to the people under 18 years of age.
Retailing premium liquor-
As the present day customers have become health conscious, the demand for premium beverages has been increasing rapidly in the Australian market. Therefore, to satisfy this demand, DanMurphy’s needs focusing on offering premium liquors to the customer segment, who like to have for increasing market share.
Expanding business globally-
DanMurphy’s requires exposing its presence in more global markets for reducing its overreliance on the Australian market that makes it exposed to the risks. Currently, the firm has existence only in Australia and NZ, and for revenue generation, the firm is mainly depended on the Australian market. Therefore, to avoid future risks, the firm should plan to grow its business overseas.
Being a dominant market player, DanMurphy’s operates its business successfully in Australia by competing effectively. The cost leadership strategy helps the firm to maximise its market share. However, with the changing trends, the firm needs adopting new technologies and other changes that are important for sustaining the market position.