Boots ltd Current strategic position

Management Summary

Introduction

This report will examine findings and analyse Boot’s current strategic position in the industry. It will analyse whether or not the new IT system has had any impact in the organisation efficiency and financial wise. Here I will discuss the formation of one of the most biggest pharmaceutical and cosmetic company in Europe.

Boots is one of the largest cosmetic high street and online retailer in the country, and in recently in continental Europe. It was founded by John Boot in 1849 when Mr Boot opened an herbalist shop in Nottingham. Boots as a company was formed in 1883 and they appointed their first pharmacist a year after. They opened their first flagship store in Nottingham in 1892. Since then it has been one of the most popular place to go get cosmetics and medicine. The company’s chemists were taken over by UniChem Plc in 1991 and they started their global brand recognition by opening their first Boots store in Republic of Ireland in Dublin in 1996. Since the mid 1990s Boots faced heavy competition from many sectors of the retail industry. They had to restructure their brand in order to counter attack the competition it faced.

In July 2006, Boots merged with their biggest rival Alliance UniChem. By announcing this deal, this made Boots the largest distributor in pharmaceutical and healthcare products. This also gave them continental recognition as UniChem was one of the largest pharmaceutical players in continental Europe. Like Wal-Mart bought Asda but they are known as Wal-Mart in America and Asda in Europe, Boots is known as Boots in England but UniChem in Europe. Alliance UniChem and the Boots merger allowed these two companies become the biggest pharmaceutical and cosmetic dealers in Europe, reaching out to more and more people, thus making a huge profit in the process. It elevated both companies to higher grounds and is still thriving to be more successful. Boots have a website setup for the American market, but do not sell online, and many of their products are only sold via department stores and pharmacies in America, but they do not have outlets for the average customer to come and look around.

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In 1997, Boots formed a loyalty card scheme, called the Advantage Card, a card which customers carry, get points when they purchase products and then reward them with special offers. This also allowed the company to find out the buying habits, and find out what customers normally would buy and then send them special offers regarding these in order to bring them back into the store and spend more. They estimated that they would sign up eight million customers, but by December 1998 they went over this estimate by signing up over ten million customers to the Advantage Card scheme, and by this their estimate of the four percent sales growth actually succeeded. The cost of the scheme was £25 million therefore the sales growth was an important part of this scheme.

The IT system was a huge part of the organisation’s card scheme. Boots is a long-established IBM customer, but they were researching other companies in regards to their new customer analysis system before deciding to stick with IBM. The reason they went for the IBM solution was because they offered the complete package as well as their own technical support teams and experience. This would obviously save them time due to the fact they do not need to train up a new person to train more people therefore the ones that create this will be able to train the Boots employees into how to use the IT system.

The database project started in spring 1997, 6 months before the card launch. This is because the company would need to make sure the database is right before they can officially launch the cards otherwise there would be a system overload, or even a backlog which would cost a lot of money, this would also enable the structure being right from the start. The size of the database eventually went up to 1.6 TB (terabytes) which held more than 2 million card holder details and some non card holder buyer behaviours in order to contrast between the two buying behaviours.

The analyst team at Boots analyse these customer buying behaviours, thus finding out what type of products intrigue the card holders, as well as the non card holders. By doing this, they can create a report for the marketing team, and tell them what can be done to entice non card holders to join the Advantage Card scheme. They can also find out what products are selling the most between the two categories of buyers, and find out new ways to sell their products to the four groups of promotion buyers, the deal seekers (only seek promotion deals), stock pilers (who buy in bulk when the items in promotion then don’t bother coming back when they are not), the loyalists (the ones that buy the products a little more when they are on promotion then revert back to their normal buying habits) and the new market (customers that buy the product when they are on promotion and then continue buying the products when they aren’t.

This report will now analyse the Boot’s strategic position by evaluating using different methods.

Strategic Evaluation

Swot Analysis

Using Swot Analysis, I will now analyse the organisation’s current position.

Strengths

Boots is a powerful pharmaceutical and cosmetic retail brand. It has a reputation of having great deals compared to other stores, and has a wide range of products in store. It has grown substantially from being a one-store shop in a city to being a continental brand (by merging with Europe’s biggest cosmetic and pharmaceutical brand Alliance UniChem). By merging, the company has become the biggest cosmetic brand in Europe, and has the entire infrastructure in place to make it a successful and big brand. The company has a good IT system which was created and run by IBM which is one of the world’s biggest IT company in the world, and uses it’s IT infrastructure to analyse what products are being sold the most, the most popular and customer’s buying behaviour, using the loyalty card scheme the backbone of this. By doing this, the analyst team at Boots use this information to give these loyal shoppers deals and it therefore eventually makes profit. The company uses its vast financial profits to invest time and money in training people and retaining a development team. By doing this they have people who know what they are doing, therefore have an advantage over other brands who do not consistently train and invest in their employees. The company’s online shopping is a great help to people who cannot go to the store because of their disability/being old. Their online prescription feature allows the user to order their prescription drugs online and delivered to them. This reaches out to more people, and especially to those with disability who cannot go to their local pharmacy, and get it delivered to their door the next working day.

Weaknesses

Though Boots is one of the biggest brands in UK and Europe, it still is not Global like some of the company’s rivals. The system that is in place could cause error hen external influences such as recession affects shoppers. It may set the trends of customers and forecasts but not necessarily forecast the trend for recession and other external influences. Like most other companies, the year of 2009, which was mostly hit by recession and VAT went down to 15% to help people with this downfall, affected businesses. Their loyalty card system is showing the customer buyer behaviour, but is it really taking into account the recession period? People are buying less and less and therefore targeting customers that used to buy these products, and offering them deals that they may not buy due to the recession, will adversely affect them, the buyer and the company. Other external factors that contribute to their weaknesses are interest rates and inflation. By this going up each year, it makes the product prices go up also. This affects the trend in buying. Will people buy the same product they bought cheaper the year before? The loyalty card scheme may help towards this problem, but will casual buyers end up buying it here or go and buy it from a pound shop.

In terms of company image, Boots are well known only in UK, whereas the company uses a different name in Europe due to Boots not being an universal word and Alliance is a universal word in Europe and UniChem is the name of the company they merged with, thus giving them profits but not actual name recognition. The company have recently moved their brand to the USA. The company is also known as Alliance Boots, and their pharmacy over there is called The DrugStore. They do not have shops in USA, but sell their products in department stores or normal drug stores/pharmacies. But because their American website does not allow online shopping, only advertising the brand, and they do not have any outlets in America, they are missing out on huge profits as America are one of the highest prescription drug users in the world. It may be good distribution but making outlets will sell more. If the company was to merge with an American pharmacy/cosmetic/pharmaceutical company, they could slowly introduce their brand to the American market and make it global. The IT system needs to be enhanced so it can cope with this expansion. The brand in the UK also only have shops in high streets, maybe making more stores like Tesco have with their Tesco Express branches, they can reach out to more people.

Opportunities

Boots should take the opportunity of merging with an American company so that they can break the American market. Also to do this same thing for Asia they can make their brand a Global brand. In 1997 they introduced Boots in New Zealand, but the store closed down in the same year due to slow sales. If an opportunity of merger for good companies in Asia and America come in, Boots could do well with this, that way they can focus their intentions of getting brand recognition in these markets where they could see their profits go above the scale. Boots are just a trade and distributor in America, this means they selling in department stores and pharmacies, but they do not have a store out there to show the market what the company actually does. New locations offer Boots opportunities to exploit the market development.

Threats

Being number one means that you are a target for competition, locally and globally. This means more and more companies will be competitively putting their prices down to compete with big companies, thus getting more and more people to shop with them rather than the big companies. The store’s loyalty card scheme is helping this cause, getting more and more customers to shop with Boots so that they can be rewarded. By being a global retailer, if they expand their operations to the USA and further, means they are exposed to political problems in the country they do their business in. Political downfall and economy downfall means fewer shoppers, and they need to tackle this problem to avoid loss of profits. The cost of producing many products has fallen because of lower manufacturing costs, due to outsourcing to low-cost regions of the world. This has lead to more and more price competition between rivals, therefore resulting in price deflation. This is a threat because rivals are finding more and more ways to entice customers to shop with them rather than their competitor. Supermarkets in particular will name their rivals in advertisements, stating they are cheaper than them. Boots on the other hand do not tend to name their competitor, rather focusing on their own name recognition to sell their products, and using their loyalty card scheme to reward their loyal customers, whilst the casual customers do not bother signing up to the loyalty card scheme and tend to shop only when there are promotions in store as the loyalty card offers do not appeal to them. Their direct competition in terms of cosmetics AND pharmaceutical products are Superdrug. Superdrug sell from both categories, but Superdrug does not seem to carry such a large range as does Boots, but are slightly cheaper. Therefore when it comes to recession, Superdrug will tend to sell more due to them selling cheaper. When recession is over, will customer buying behaviour change? There is a chance of that, unless they are so used to buying cheap products it may change slightly. Superdrug have less variety than Boots, therefore Boots tend to sell more of the products that the average customer cannot buy in Superdrug. Price is normally higher on these due to the company knowing their competitor not selling the same product.

Porter’s Five Forces Model

Now I will use Porter’s Five Forces model for competitive analysis of the company’s strategic position. The five forces allow the marketer to compare a competitive environment.

Existing Competitors

The main existing competitor is Superdrug in terms of what gets sold in Boots. This is because Superdrug sells what Boots sell, but has less variety but is cheaper. Customers tend to shop at stores that are cheaper, but because of Boots selling more variety it counter attacks this problem. It also allows the customers to choose between the brands, which gives healthy competition for both, which is good for the company and customers, as it gives them new ways of ousting the competitor. Superdrug does not have a loyalty scheme, thus eliminating the need for a good IT system. Boots have an advantage over this as their IT system was created and developed by IBM, and they can monitor activities using their IT system, and this is a huge bonus for them. Other competitors are supermarkets and smaller stores, such as Asda and Tesco. Asda and Tesco do not have pharmacy facilities, but they sell cosmetic goods, which are most of the time are on offers. This tends to leash the customer to their store, but one main disadvantage of them is that they do not tend to sell varieties of these products. They may have their own loyalty cards, but people who tend to shop more and more on cosmetic products tend make use of their Boots Advantage card.

Threats of New Entrants