Problem
The problem that Reed Supermarkets came across is the choice of an effective strategy for the company’s expansion in the Ohio retail market with the fierce competition and limited expansion budget in mind.
Analysis of the Problem
Pressure to Increase the Market Share
Meredith Collins’s challenge was to increase the market share of Reed supermarkets in Columbus, OH, from the current 14% to 16% in 2011. The aim had to be achieved without extra investment in new stores; the budget for the coming two years did not presuppose opening any new supermarkets. This lack of investment worsened the chances for market share growth because Reed’s close competitors were planning more comprehensive Columbus coverage with several new stores in new city districts. Therefore, Collins faced the problem of attaining the growth target with the existing resources.
Tough Competition
The grocery retail landscape in Columbus changed significantly in 2008-2010, giving Reed additional causes of concern and competitive threats from numerous innovative retail models. Before the 2008 crisis, Reed enjoyed steady growth and customer loyalty due to its differentiated positioning as a health-conscious store with organic products, cooked food, and various frills. They also won the loyalty of many high-income pet lovers in the city due to their investment in organic pet food production. However, as of 2011, Reed had to compete with a multitude of dollar stores, limited selection stores, supercenters, and warehouse clubs, all of which offered customers a much cheaper product range.
Price vs. Value Dilemma
The 2008 crisis brought a significant change in customers’ loyalty to retail stores where they purchased food and utensils. Those who were ready to spend extra money on comfort, exceptional service, and unrivaled quality shifted to the lowest price offerings for financial savings. Therefore, Reed lost many loyal clients because of its positioning as a high-value and high-price retail store specializing in organic, healthy merchandise. The pressing challenge for Reed’s growth in 2011 was to follow Columbus shoppers’ low-price preferences or stick to value positioning and differentiation.
Potential Solutions
Continuation of the Dollar Specials Program
The pros of the dollar specials program include same-store traffic increases by 3% and the total share of dollar special items reaching 4%. The total transaction value per average ticket was around 40% for dollar specials, suggesting the customers’ active interest in the program. Therefore, the campaign with dollar specials promised a sustainable increase in sales volumes, returning a part of the customers who left during the recession because of Reed’s high prices. Besides, dollar specials were expected to change Reed’s image as an expensive retailer, attracting new clients to its walls and boosting sales.
However, following this program is also associated with specific cons, such as sustaining a radical reduction of profit margin and losing the hard-won image. The need to cut prices for around 250 items every week affected the profit margin of Reed stores considerably, with some items discounted at almost 50%. Therefore, the increase in sales volume is superficial, giving no real value in terms of Reed’s overall profitability. In addition, Reed has enjoyed its brand image for premium private-label merchandise and organic products, a distinctive market position that supercenters and dollar stores would never attain. Thus, shifting to a dollar specials program forever would presuppose losing that market position, which was projected to bring more value as the market recovered from the recession.
Increased Focus on Customer Value
The focus on customer value is a favorable solution that can help Reed stay with what it has and possibly experience the return of customers urged to leave in 2008. As of 2010, the market already showed signs of recovery, so Reed’s marketers could expect to regain their lost market share by welcoming the old customers back. This strategy may succeed only if Reed preserves its unique differentiation approach and premium merchandise.
The con of this strategy is Reed’s failure to cover the low-class and middle-class segments of Columbus consumers, which is also huge. With a U.S. average shopping ticket equaling $7-$10, Reed has minimal growth potential with its $30+ ticket. Thus, it is vital to understand what customers should grow Reed’s market share – those loyal to its old premium-level image or those attracted to lower prices and dollar specials.
Everyday Low Pricing Model
The 2010 survey of Columbus non-customers showed that 55% focused on better prices at other retail stores. The 2010 email survey also supported people’s prioritization of price, with better pricing cited by 75% and better discounts named by 62% as the primary reasons for choosing a specific retail store for shopping. The value positioning of Reed seems to have lost its appeal amid the global recession urging even middle- to high-income customers to shift their shopping preferences to dollar stores. Thus, market share growth seems possible only by shifting a focus on low-priced merchandise and expanding affordable private-label brands to keep the average shopper’s ticket lower.
However, adopting the low-pricing model has strong cons that Reed’s marketers should keep in mind. First, by abandoning the high-value, differentiated positioning in the Columbus market, Reed loses its unique brand image and steps into the battleground of low-price stores. As the case study data shows, competition in the low-price segment was fierce in 2010-2011, giving new entrants no chance for success. Thus, Reed risks winning no new customers in the low-price segment while at the same time losing its premium private-label customers.