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Week 3 Sample Memo1.pdf
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Home Depot
: Do you agree with Home Depot’s strategy for launching Villagers Hardware?
Would you recommend any changes to their strategy?
We disagree with Home Depot’s strategy for launching Villagers Hardware for three reasons:
1.
Home Depot will pay severe “straddling” penalties:
Home Depot is trying to match the
benefits of a different competitive position—smaller, local stores—while maintaining its
current position as a warehouse-based superstore. This is a very difficult shift, and the costs of
this gamble could be huge. As an example, let’s consider what happened when Continental
introduced Continental Lite as an alternative to Southwest’s low-fare, high-turnover flights.
Continental could not serve their new customers effectively while maintaining their existing
base, and they lost several hundreds of million dollars. Home Depot must make informed
tradeoffs – they cannot serve both competitive positions without bearing major inefficiencies.
2.
Villagers Hardware is misaligned with Home Depot’s competitive position:
Currently,
Home Depot has a clear and effective need-based position: they serve all of the needs of large-
community consumers who value low prices and high customer service. However, Villagers is
attempting to target a new set of customers, those who live in smaller communities that are
out of reach for a supersized store. As Porter mentioned, “the essence of strategic positioning
is to choose activities that are different from rivals.” Home Depot’s advantage is in its ability
to serve a particular customer segment. The target customer for Villagers does not fall within
Home Depot’s sweet spot.
3.
There are image tradeoffs with launching Villagers:
The image of Villagers is not perfectly
aligned with Home Depot’s. Home Depot is known for delivering low prices and high
customer service in large superstores. As a result, they may lack credibility in smaller markets
and the introduction of Villagers can cannibalize existing sales and their brand image.
In short, we believe this is an example of hypercompetition. As the Home Depot management is
pushing to improve customer access, they are moving farther away from their viable competitive
position. In an effort to grow, they are compromising their competitive advantage.
Instead, Home Depot should concentrate on deepening their strategic position. We have two
recommendations for how they should change their strategy:
1.
Broaden globally, rather than domestically, and leverage Home Depot’s existing strengths and
brand recognition in new markets
2.
Expand product lines that others can’t compete on (e.g., higher-end items like power drills)
Home Depot
: How would you recommend that Ed Trygar respond to Villagers’ entry?
We have five recommendations for how Ed Trygar should respond to Villagers’ entry:
1.
Expand the key and lock business
– This is a differentiating factor for Ed’s business and a
key competitive advantage. This is a capability that Villagers will have trouble replicating.
2.
Move away from big-ticket items (e.g., power tools)
– Ed’s store cannot compete on price
for the high-end items, so he should focus on more lower-end products.
3.
Invest in customer loyalty and brand recognition
– Ed should advertise in the local
newspaper and local Little League teams to show how he is a part of the community.
4.
Make more informed merchandising decisions
– Less unused inventory will improve
profitability. Ed should stop purchasing items on “feel” and use a more analytical approach.
5.
Improve operational efficiency
– A small investment in a computer can reduce the time it
takes to adjust prices.
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