Analyse the strategic position of Frozen World through either the model of Porter’s generic strategies or Bowman’s strategic clock (12 marks)
Frozen World have positioned themselves with very low prices to ensure that they can attract customers on price alone. By using Cost Leadership, they sacrifice higher end market sales and focus on volume of goods sold. In order to make this work, they focus on economies of scale to allow bulk purchases to be made and low unit costs to be achieved. Frozen World also benefits from the declining UK economy, as more people are struggling to afford essentials such as food, which makes Frozen World more attractive to potential customers. They further reduce their costs by selling unbranded goods, because known brand names automatically inflate costs. In the case of Frozen World, they don’t care particularly about brands or quality as they have put their entire focus into price.
They have placed themselves at position 1 on Bowman’s Strategic Clock, providing low prices with low added value. They don’t add any value particularly, but their USP is having the lowest prices, which is enough to generate sales. When they made the decision to position themselves here, they sacrificed a lot of potential customers who would look for higher quality products, more socially impactful businesses, in favour of being the cheapest.
To what extent is a low-cost strategy the best strategic position for Frozen World to adopt? (20 marks)
Plan
Context hooks: Frozen World
Evaluation hooks: low-cost strategy, best strategic position
P1
- In the current UK economic climate, many people have decreasing wealth
- Therefore, the main deciding factor in whether or not people can/will buy a good is price
- This suggests that position 1 on Bowman’s Strategic clock is an effective position to hold
P2
- Low-cost is associated with low-quality
- Even if people have decreasing wealth, they will still want to eat good quality food
- If Frozen World develops a reputation for being poor quality, people will not buy from them regardless of their pricing
- Therefore, it is apparent that Frozen World’s market position may be poor in the long run, as they are working so hard on minimising costs that they will not be able to sustain a decent level of quality.
- And with 37% of the population purchasing from discount stores at the moment, Frozen World is likely to have some hard competition.
AJIM
(Answer, Justify, It depends on, Most Important)
- It is a decent position for Frozen World to adopt, as low price is not only a sure way of generating sales but it also doubles up as a good marketing strategy.
- This is especially effective because people are not particularly affluent at the moment.
- The most important factor for them will be to ensure a consistent level of quality to avoid developing a bad name for their brand.
Answer
In the UK, the average person does not have much disposable income. This means that many people are looking to save money wherever they can, and food shopping is a frequent expense that cannot be avoided. However, Frozen World are offering the food people need at extremely low prices, giving them a niche in the market. For many people, price is the only thing that matters when purchasing, so Frozen World’s exceptionally low pricing of £1 or less allows them to almost definitely attract many customers. Because of this, we can assume that their placement at position 1 on Bowman’s Strategic Clock is effective.
Unfortunately, low cost is associated with low quality, so Frozen World is unlikely to be able to make much in the way of sales to people who are not struggling financially. Additionally, even people who are struggling will still want quality food if they can manage it, so a competitor to Frozen World offering better food at only a slightly higher price could easily acquire Frozen World’s market share. If Frozen World develops a poor reputation for quality, then they will lose sales and customers regardless of how low their pricing is, because people will view their products as unusable. This suggests that their market positioning may not hold up in the long run, and that the Frozen World business might only be a short-term success. As resources are placed on lowering costs, how will they effectively regulate quality?
Their current position, in the current economic climate is reasonable, Frozen World are capable of making sales and are capable of growing. Low price is a double win as it not only guarantees them sales but acts as a great marketing point. As there is a dwindling number of people who are currently affluent or well off, budget supermarkets are going to be increasingly popular as people look for ways to cut costs to the bone. Frozen World’s most important factor is going to be trying to maintain a consistent level of quality whilst not raising their prices. It will only take 1 or 2 slip ups for their reputation to be irreparably damaged, and this will significantly harm their ability to do business.