Question

History of the Business In February 1978, Ahmad moved to a town with a population of 25,000 and opened a supermarket called Ahmad Supermarket. Previously, he had operated grocery stores in two other different towns. He owned and managed his first mini market store 10 years earlier at the age of 30. The supermarket was heavily involved in selling on credit, and Ahmad’s first move was to go into a strict cash sales operation – the first of its kind in the town. Ahmad’s motto was “Value for Your Money Every Day” and he emphasized on friendly, efficient service, high quality merchandise, and reasonable prices. His competitors were old line stores who did not welcome the strong competition. Several innovations helped him to get established and increase sales volume. For example, Ahmad Supermarket was the first store in the town to feature advertised weekend and holiday specials. Ahmad was also one of the first stores in that area of the state to give trading coupons. By 1998, his store had become the number one supermarket in the town. By the end of 1998, the store had also outgrown the original downtown location. A modern, 10,000-square-foot store was erected at the east edge of the town – the direction of the town’s growth. Shortly after this move, Ocean, a regional supermarket chain, opened the first real chain store in the town. This competition was of great concern to Ahmad, but he continued to follow his basic business philosophy and to operate even more efficiently. As a result, Ahmad Supermarket continued to show steady yearly growth in sales and profits. Recent Developments in Ahmad Supermarket In January 2000, Ahmad decided to sell a 30 percent interest in the business to his older brother, Ismail, and another 20 percent interest to his younger brother, Adam. Adam had recently been graduated from a local university, and he became an active partner in the business. For many years, the store had been recognized as one of the leading independent supermarket operations in the state. 2 Due to rapid economic and social developments in the area, the town’s population of 25,000 had grown to 200,000 by the year 2000. Ahmad Supermarket was located in the newest section of the growing town. Residents in the area were predominantly in the middle to high income brackets. However, there was also a substantial amount of lower income trade from customers living in the nearby villages. Ahmad affiliated with one of the nation’s largest independent wholesalers in 2000. This affiliation provided Ahmad the opportunity to use of many of the private labels as well as help to strengthen his company’s competitive edge in the local retailing industry. The wholesaler also provided advertising themes and promotions to member stores. Examples were promotions featuring china, calendars, diaries, bags, umbrellas, pens cutleries, towels, and t-shirts. These promotions served not only as good stimulants for increasing sales of the company, but also made Ahmad Supermarket more popular among the local retailers. Customers were inclined to say, “Something is always happening at Ahmad’s!” Local Market Structure in 2000 The Ocean chain store was located at the edge of the downtown section. Initially, Ocean mainly focused on selling their goods to customers in the middle to lower income brackets. However, more recently, they have also added merchandise that caters to the growing needs of the upper income customers in the area. Ocean then became one of Ahmad’s competitors. Presently, JIMAT Food Store remained as Ahmad’s major independent competitor. As a matter of fact, JIMAT was Ahmad’s strongest independent competitor since he opened his supermarket in 1978. JIMAT Food Store also moved to the east edge of the town and was still facing the problem of limited parking space. The food store’s major appeal was the credit offered to regular customers as well as goodwill which had been built up through years of quality service. However, the company’s business has slowly dwindled in recent years. The pricing structure in the retailing market could still be described as healthy. Although there were a couple of large food chain stores operating in the town, the smaller retailers 3 were still able to markup their products at reasonable prices. Though there was some competition among the existing companies, the rivalry among the retailers was not intense. Beginning of Discount Store Competition In the middle of 2001, a discount store came to the town and opened its doors to the public. With the new player came a new type of competition in the local retailing market. C-Mart Discount Center, a 20,000-square-foot operation, carried not only a complete line of nonfood items but also a wide line of grocery items such as dry groceries, fresh meats, dairy products, fresh fruits and vegetables as well as frozen foods. The store was franchised, and the owner operated two other C-Mart Discount Centers in a larger town some 25 kilometers away. When C-Mart Discount Center opened for business, they immediately dropped prices drastically, especially prices of staple items such as rice, cooking oil, and flour. They featured and offered a variety of staple items and branded products priced at 15 to 20 percent lower than the other retailing stores in the area. C-Mart Discount Center is seemingly using its food operation as a drawing card for their more profitable lines. Increasing Competition Ocean made it apparent immediately that it did not intend to be undersold by the discount store that gave no free coupons and provided no carryout service. Ocean began to offer weeklong specials to its customers. Eventually, the weeklong specials, rather than the weekend specials became one of the new rules in the local retailing business. At the same time, competition increasingly became intense among the retailers in the town. The retailers began to compete with each other by lowering their everyday items to near cost or below. K.C. Lim, owner of JIMAT Food Store, passed away in 2001, shortly after the opening of the discount store. Without wasting any time, a young successful businessman with an international chain store management experience quickly purchased the JIMAT Food Store 4 from the deceased family. The young businessman immediately eliminated both credit and free coupons and attempted to start a discount type of operation himself. He bought most of his products directly from the local producers as well as international manufacturers and sold them at discounted prices. Loss leaders became more prevalent in the local retailing industry. The Ocean chain not only met the discount prices but even tried to undersell some of its merchandise. Meanwhile, they further increased their advertising; more newspaper advertising, handbills, radio, and some television commercials. JIMAT likewise stayed in the thick of the price competition. Ahmad’s Dilemma The arrival of the discounter marked the beginning of a disturbing period for Ahmad Supermarket. The relatively calm situation that had prevailed for many years was suddenly shattered. For the past three years, Ahmad Supermarket had been experiencing declining sales of about 20 percent a year. As one might expect, Ahmad joined the group by lowering prices. Nevertheless, as he saw prices cut to profitless levels, he questioned the wisdom of such extreme competition. Part of the question was the type of store Ahmad Supermarket should try to be. He began to ask himself whether Ahmad Supermarket could survive if the company continues to project an image that distinguished it from the discounter. At times, it appears to Ahmad that price competition may be the most effective way to not only attract customers but also necessary in such a business. Alternative Strategies — Brainstorm the alternative solutions for your problem. — Choose the best three or four alternative strategies. — The alternatives must be able to resolve the problem stated. — The alternative should be an approach with a pattern of action to resolve the problem: NOT STEPS or ACTIVITIES. — Describe each alternative briefly: Half Page Each

Answer 1

Ahmad can go for the following three strategies to counter competition and price war:

1. Target online marketing: He can start by starting e-commerce store where they can book orders online and deliver to customers at their doorstep. He can advertise payment on the delivery option where customers can pay once they receive the products.

The online portal can encourage bulk buying by making a percentage discount on the increase in buying value for example on the purchase of goods worth $ 250 customer can get a cashback of 5% in the next order.

He can keep customers engaged by popping up good value offers from time to time. The scheme of coupons can also be used online. All offers and free gifts can be also backed by the wholesaler.

The additional cost he will incur is just for delivering the product to the houses which can be efficiently planned. The ordering system can be aligned to meet the customer preferred time slots. The convenience of getting deliveries in cash and in preferred time slots will increase sales revenue.

2. Good Price-Good Value: The Ahmads can build on his strength which is already well established i.e. Good value for money every day. He should focus on providing a wider range of products with more information and increased customer service. He should focus on making the store experience novel and unique for the customer. The tagline should be “value for money” not discounted offers. The target segment should be upper middle class and the elite clientele. The team should be encouraged to provide exemplary customer service. Further, he can add a range of specialty foods like types of cheese, gourmet foods, and organic range of food. They should try on creating a differentiation in product line and services not focus on reducing the prices.

3. Special Discount Days: He can have special discount Wednesday to cater to low-income group and encourage sales of slow-moving items on that day. This special Wednesday can be widely advertised and promoted in town. Special game shows should hold on the Wednesday involving the customers to play a small activity or game. Wednesdays should become an extra special day for shoppers who walk in and get surprised offers. The people looking for discounts and those who feel Ahmad has good value products and special items would be encouraged to try Ahmad.

4. Loyalty Program: Ahmad Supermarket should introduce a customer loyalty points program which will encourage shoppers to collect points and encourage buying. The scheme should have freebies for birthdays, anniversaries, and special occasions. The Ahmad should advertise the loyalty program and encourage customers to add more points to get more benefits. The points can be adjusted in the next purchase or debited from the bill amount. This will increase the number of repeat walk-ins and people will keep coming back when they see point increasing. Ahmad can also have a different class of a silver, gold, and platinum and number of benefits can also increase according to the slabs. He can also try to collaborate with hotels and airlines to give benefit to Ahmad cardholder.