FEDBACK FOR QUESTION WEEK 3 for week commencing 19.03.12
1. Evaluate the Financial Position of the Company (at the time of the case study) and comment upon the apparent success or otherwise of its strategy, based on your findings. Introduction
We may consider a company’s strategy from a number of aspects, but generally we are interested in answering the question: How well is the company’s present strategy working? To understand and analyse success in terms of strategy, we must begin by understanding what the strategy is. From Thompson, Strickland and Gamble (2012) we might examine the following areas * Identify competitive approach
* Low-cost leadership?
* Best-cost provider?
* Focus on a particular market niche?
* Determine competitive scope
* Broad or narrow geographic market coverage?
* In how many stages of industry’s production/distribution chain does the company operate? * Examine recent strategic moves
* Identify functional strategies
We can also assess performance in terms of both quantitative measures (financial and strategic achievements against budget, plans, etc.) and look to see if its performance is above or below the industry average. We can also look at qualitative measures (such as brand awareness /status, consumer attitudes to the company, and so on). There is only limited information in the case regarding some of these areas, but I will attempt to look first at the strategy followed by Body Shop, then at the financial ratios based on its figures, non-financial measures and then finally draw conclusions that attempt to answer the question.
Strategy being followed by Body Shop
Porter’s Generic strategies, as amended by Hitt, Ireland and Hoskisson (2002) are shown below.
If we consider first, their competitive approach, there is no evidence in the case study that Body Shop has any concern about Cost Leadership, and in fact we know from the Trading Charter and Mission (case, page 539) that the firm pays above market rates for goods it buys from suppliers in poorer countries, where it can, which is not something a cost-leadership company would normally do. We also have plentiful evidence from the case that Body Shop occupies a unique position in the cosmetics retailing industry, as it takes a highly principled stance on many issues, as indicated in my earlier answer to question 2, and shown in the firm’s mission statement, which mentions many areas of Corporate Social Responsibility – ecological and ‘green’ issues, human and civil rights, against animal testing of cosmetics, and so on. The company must therefore be following a Differentiation strategy. The question then is whether this is broad or narrow in focus, as suggested by Thompson, Strickland and Gamble, as mentioned earlier - their competitive scope.
The decision here rests on how one defines the market: Body Shop is a retailer that also manufactures, within the cosmetics industry. It is a specialist retailer, not selling anything apart from its own products and is not configured and structured like bigger retailers such as - in the UK - House of Fraser, Debenhams, Boots, Marks and Spencer or Tesco, all of whom retail cosmetics amongst many other product ranges. I therefore conclude that Body Shop is a Focused Differentiator. Firms that seek differentiation, according to Porter, seek higher profit margins through finding something unique about themselves, which consumers value more than the offerings of competitors. In the case of Body Shop we might see this as being their highly visible and principled ethical stance, and the range of products which they sell, being organic, fair trade and ethically produced and traded, so their competitive approach and scope is Focus Differentiation, as such a stance is not likely to appeal to all shoppers. Similarly, some,...