Assessment

Assessment : Markets segments and decision making

Subject : MKT501-Marketing Management
Lecturer : DR West
Student name : PratikkumarVinodbhai Rathod
Student id : 11634529

Table of Contents
Introduction 3
About Woolworths Supermarkets 3
Industry Analysis 4
PESTLE Analysis 5
Market Segments of Woolworths 7
Level of customer involvement 8
Nature of competition 9
Coles vs Woolworths in-store and online 11
Positioning map 12
Conclusion 13
References 14

Introduction
Businesses today face a highly challenging and dynamic business environment on day to day basis. To sustain in such dynamic business environment, business owners should have a thorough knowledge of their industry and their marketplace. Industry analysis provides an overview of profits which can be generated through business and provide awareness of the competitive forces existing in the market. Furthermore, industry analysis empowers an organization to adopt effective segmentation, targeting and positioning strategies. This paper provides the strategic analysis of “Woolworths supermarkets.” This paper provides an industry analysis of Woolworths and evaluates the aspects of segmentation, targeting and positioning strategies adopted by the company. This paper uses the parameters such as – growth, profitability and macro environment to analyze the industry and marketplace of Woolworths Supermarkets.
About Woolworths Supermarkets
Woolworths Supermarkets is a grocery chain owned by Woolworths, and it has operations in Australia and New Zealand. It is Australia’s largest supermarket chain, and along with Coles, it owns 80% market share of Australian retail industry. It operates around 1000 stores including supermarkets and convenience stores, across Australia (Woolworths Supermarkets, 2017). The supermarket chain provides superior customer service, a wide variety of products and value based prices. Woolworths owns five private labels- Woolworths Homebrand, Woolworths Select, Woolworths Gold, Woolworths Fresh, and Macro Wholefoods Market (Woolworths Supermarkets, 2017). Woolworths is known for fresh fruits, vegetable, and meat which it sources from Australian farmers. The supermarket chain is also selling its grocery through its e-commerce site and app. The company has also developed a “Click & Collect” model where customers order through the Woolworths app and collect from any of its stores around the country which reduces customer’s time spent on grocery shopping (Annual Report, 2016). This supermarket chain is being owned by the Woolworths Limited, which is an Australia-based conglomerate having business interests in supermarkets, liquor retailing, pubs, and hotels.
Industry Analysis
The retail industry in Australia is growing at 3.9% per annum in grocery and supermarket segment from last five years (Deloitte, 2016). Australians has been cutting spending due to low-income growth. Domestic demand for retail goods remains sluggish in Australia, but international tourism is promoting the demand for retail goods. Tourist expenditure in the retail industry was around $130 billion in the financial year 2015-16 (Deloitte, 2016). The rise in international tourism is boosting the demand as well competition in retail industry. Intense competition and sluggish growth have put pressures on the profits of retailers. Apparel category is growing rapidly as compared to the other categories in the retailing industry. International retailers are flocking in Australia to capture the growth in apparel category and to offer international brands to the tourists (Rowsell, 2016). Even the Grocery retailers are experiencing the positive grown largely due to increased popularity of discount stores. The German discount retailer, Aldi, has triggered the intense competition in Australian retail market by offering grocery products at a discount. The Woolworths and Coles have responded by slashing the prices of their products. Online sales are growing more rapidly than store sales due to which most of the retailers have adopted the multi-channel strategy. Even Woolworths started its online business in 2014 to offer convenience to its customers (Powell, 2014). The retailing industry is expected to grow at 3% per annum, largely driven by international tourism and online sales (Deloitte, 2016).
Woolworths has optimized in business operations to cope up with these recent trends in retail industry. The company has devised a three-year strategy to lower the prices and to make more compelling offers to its customers (Annual Report, 2016). After facing severe loss in 2015- 2016, the company had closed many of its unprofitable stores and had devised an aggressive digital strategy. The company has focused on providing convenience and innovation. This restructuring has resulted in a profit of $ 725million for six months ending 31st December 2016 whereas last year for the same period it had suffered a loss on $972 million. At presently the company has 14.6 million regular in-store customers and 5, 00,000 online customers (Australian Food News, 2015). Furthermore, the company has plans to increase their Click & Collect counters to 1000 stores. The company is aiming for a lean retail model which would result in huge cost savings (Australian Food News, 2015). Woolworths have a strong brand name and strong business potential, and by using these, it plans to overcome its recent challenges.
PESTLE Analysis
The PESTLE analysis of Macro environment faced by Woolworths is as below:-
Political Factors
The retail industry in any country is being affected by the political conditions of that country. The strategies and policies of ruling political party may significantly affect the operations of the retail player. The business environment in an economy is shaped by the political policies of the ruling political party. Furthermore, the political instability in the country may hamper the sustainability of the business. Like, the retail industry in Australia was a duopoly till last decade, but the promotion of foreign investment in retail added more players and increased the competition in the industry.
Economic Factors
The demand for retail products is strong related to the economic conditions of a country. The retail industry in Australia is facing a sluggish demand due to low-income growth. Higher economic growth pushes the demand for retail products as customer expands their discretionary expenditure. Woolworths had to face massive losses during the financial crises.
Socio-cultural factors
Customers are the source of revenue for any business and business developed products based on the needs of customers. The businesses need to keep on innovating their products and processes to meet the changing needs of their customers. Like with the increased health awareness, more and more retail chains are selling natural and organic products.
Technological Factors
The retail industry has been able to deliver efficient services at a lower operating cost due to technological innovations. Supermarkets like Woolworths and Coles have actively used technology to enhance their in-store experience. Furthermore, with the growth of e-commerce retailers have started selling grocery online.
Legal Factors
Retail players are required to follow the taxation laws, employee regulations, and food regulations. Supermarkets are required to meet the country regulations in these aspects. Any legal repercussion can lead to closing of the business operations
Environmental Factors
With the increasing awareness of environmental pollution and corporate sustainability, the businesses are required to ensure environmental sustainability. Businesses operate in society and derive all their resources from society. Hence it is expected that businesses operate in socially and environmentally responsible manner. Woolworths has taken many initiatives to minimize the impact of its operations on the environment. The company also has a sustainability strategy in place.

Market Segments of Woolworths
Segmentation, Targeting, and Positioning (STP) is a modern marketing approach adopted by businesses these days. Market segmentation refers to the division of buyers in the market according to a set of variables (Pride, Ferrell, Lukas, Schembri, & Niininen, 2014). Targeting and positioning follow the process of market segmentation. Targeting refers to the identification of the most profitable segments for businesses to operate. Positioning refers to the creation of the brand position in the minds of consumers.
The market segmentation for Woolworths by geography includes the grocery market in Australia and New Zealand. The global players like Wal-Mart and Aldi are operating in multiple countries, but Woolworths has limited customer base due to its geographical concentration in Australia and New Zealand. Its target market includes people of all ages belonging to lower and middle-income class. However, the company has been primarily targeting the people between the age group of 18-35 years, less affluent but well educated. Strategically by cultivating loyalty among these young customers, Woolworths can gain long term benefits. As a response to the lower price offering by Coles and Aldi, Woolworths have made massive investments in low price grocery. The company launched a Cheap Cheap marketing campaign in 2015 to highlight the value based pricing. The tagline of the company- “We’re Woolworths the Fresh Food People” also targets the increasing awareness about natural and fresh food among its primary market. Woolworths not offer value based pricing for its primary market but also integrates social media strategy to engage it. The strategy has proved to be highly effective for Woolworths. To target its primary market, Woolworths has started its e-commerce operation and “Click ; Collect service.” Under this “Click ; Collect “service customers can order the grocery via Woolworths app and then can collect the ordered grocery through any of its selected stores. The secondary target market of Woolworths includes the customers above 35 years of age. Its physical stores cater to the older generation which still prefers to buy goods by physically visiting the supermarket. Woolworth has positioned itself as trusted and reliable brand in its primary and secondary target market.
Level of customer involvement
A customer buys grocery on an everyday basis and usually has low involvement in their grocery buying behavior. Most of the grocery products are time sensitive due to perishable nature. Therefore, while buying grocery customer prefer fresh products, followed by price & quality. The consumer’s preference for marketplace depends on the convenience and ease. Supermarkets gained popularity as they offered convenience by selling all products under one roof. The online sales in grocery have gained popularity mainly due to the convenience it offers. The customer buying behavior is influenced by many factors. The level of involvement in buying grocery is usually low as it is a routine decision and involves lesser purchasing power. Thus the customers can easily change the supplier based on the price and convenience offered. Like, When Aldi entered Australian retail market it was highly successful in eating the market share of Woolworths and Coles by offering low prices.
The Woolworths have promoted itself as a Fresh Food People considering the importance of fresh food for consumers. Earlier the level of involvement of customer was very less in Woolworth’s decision making. The company was making a decision and launching campaigns by conducting customer research. Woolworths Fresh Food People campaign and the Cheap Cheap campaign was based on the insights provided by customer research. By using customer insights, the Woolworths has been able to position itself as a brand offering high-quality products to its customers at value based prices. However, this involvement of customers has increased recently due to the usage of social media. The company has an active social media strategy to engage its customers. The Woolworths is known for its timely response. Like, consumers posted the photo of Woolworth’s billboard showing doughnut as “fresh food.” Woolworths responded quickly by removing the billboard and apologizing on social media.
Nature of competition
Every industry has a fair number of competitors which compete for similar product or service. Until last decade, there were only two dominant players in supermarket business in Australia – Woolworths, and Coles. This duopoly was criticized by the economists are it worked for retailers. However, in recent years many players have entered the market and are competing mainly by price. Australian grocery shoppers have benefited a lot from this growing intense competition. Aldi, the German discount retailer, initiated the price war by selling grocery at much lower prices than Coles and Woolworths. Aldi had been highly successful in denting the market share of both Woolworths and Coles. Following the Aldi’s discount pricing, Coles and Woolworths also dropped the prices of their products significantly. Now, competition is working effectively in Australian supermarket business and benefitting the customers (Burke, 2016). However, this irrational promotional stints and lower prices are driving down the industry profitability (Wells, 2015). The players should target the different market segments rather than competing on the basis of price. The current share of various supermarkets is shown in the figure as below:-

Shares of the $89.8billion spent at Supermarkets in 12 months to September 2016

It can be seen from the above figure that still the industry leaders are Coles & Woolworths. However, Aldi has been able to earn a respectable market share in the short period. The major competitor of Woolworths is Coles.
Coles vs. Woolworths in-store and online

Features Coles Woolworths
In-store experience
Coles in-store experience is not as good as Woolworths Coles has more of human checkouts at its stores. Woolworths offers high in-store experience as it has place automated self-service kiosks in most of its stores. Woolworths have refurbished its stores according to the local customer preferences.

Brand Image
Coles brand image is weaker as compared to Woolworths due to various scandals and sustainability issues. Woolworths have a stronger brand image as compared to Coles. Woolworths brand name is trusted for the product quality and freshness.
Core competency
Providing high-quality goods and having a loyal customer base Woolworth’s core competency is providing high-quality products at value based prices.
Market Share Coles have comparatively lesser market share than Woolworths Coles have comparatively lesser market share than Woolworths
Online presence Coles is selling grocery online, but it usually charges a premium of 3-7% for the convenience offered. Woolworths is selling the grocery online at in-store prices. It does not charge any premium from the customer.
Online sales Delivery First delivery is free at Coles online and later on, if the delivery is above $ 100 and payment is made by master card, then it is free. First three delivery of online shopping is free, and after that, the delivery is free if the order is above $300.
Pricing The Coles comparatively offers lesser prices than Woolworths Woolworth’s grocery is dearer than that of Coles. Though Woolworths have effectively reduced prices of all it goods still it products are expensive in comparison to its competitor.
Private label brands Coles, Coles Smart Buy, Coles Finest, Coles Organic, Coles Simply Gluten-free and other. Woolworths Homebrand, Woolworths Select, Woolworths Gold, Macro Wholefoods Market.

Positioning map
Positioning maps are the diagrammatic presentation of the perceptions about the brand held by the customers or potential customers. Positioning map helps the companies to understand the customer perceptions about their organization. The positioning map for supermarkets operating in Australia is as below:-

Department
Aldi Coles
K Mart Woolworths David Jones
Big W

Value Metcash Luxury

Specialty
Positioning Map of Supermarkets in Australia
As per this positioning, map customer considers that Woolworths is departmental store offering an array of high-quality product at value pricing. The Coles and Woolworths share the same customer perceptions. However, Aldi, Kmart, and Big W are considered as discount stores.
Conclusion
Woolworths Supermarkets is a leading grocery chain with operations in Australia and New Zealand. The Australian supermarket was dominated by Woolworths and Coles but the German discount retailer- Aldi has triggered the price war in the industry. To compete with Aldi both Woolworths and Coles have reduced their prices. With the increased price based competition and sluggishness in domestic demand, Woolworths is facing pressures on it revenues. To deal with these challenges Woolworths has devised effective segmentation, targeting and positioning strategies to overcome the challenges. Woolworths has been able to retain its market share through improving its in-store experience and by selling online.
References

Annual Report (2016). Woolworths Website. Retrieved from:- http://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf
Australian Food News (2015). Woolworths announces new strategies to win over grocery shoppers. Retrieved from:-http://www.ausfoodnews.com.au/2015/05/06/woolworths-announces-new-strategies-to-win-over-grocery-shoppers-afn-reveals-full-detail.html
Burke, L. (2016). IT’S the war no supermarket wants to have, but Australian grocery shoppers could be the real winners. News.com.au. Retrieved from:-http://www.news.com.au/finance/business/retail/the-war-no-supermarket-wants-to-have/news-story/d82bf59300beb17ab27a6d3315da71d8
Deloitte (2016). Global Powers of Retailing 2016. Retrieved from:-https://www2.deloitte.com/au/en/pages/consumer-business/articles/global-powers-of-retailing-2016.html

Powell, R. (2014). Online grocery boom powering Woolworths. The Sydney Morning Herald. Retrieved from:-http://www.smh.com.au/business/online-grocery-boom-powering-woolworths-20140829-10a5cz.html
Pride, W., Ferrell, O., Lukas, B., Schembri, S. and Niininen, O. (2014). Marketing Principles. Cengage Leaning.
Rowsell, V. (2016). Top Five Retail Trends to Watch in 2017. Smart Company. Retrieved from:-http://www.smartcompany.com.au/industries/retail/top-five-retail-trends-watch-2017/
Tanner, J. F., and Raymond, M. A. (2013). Principles of Marketing, Version 2.0. Flat World Knowledge.
Wells, C. (2015). Australian supermarket competition is great for consumers but it could ruin the economy. Business Insider. Retrieved from:-https://www.businessinsider.com.au/australian-supermarket-competition-is-great-for-consumers-but-it-could-ruin-the-economy-2015-7#lLLR5zkXDhwt4pqT.99
Woolworths Supermarkets (2017). Woolworths Website. Retrieved from:-http://www.woolworthsgroup.com.au/page/about-us/our-brands/supermarkets/Woolworths