New Zealand Building Supplies Industry Case Study
Question 1
What are the key success factors for competing in building supplies retailing in New Zealand?
The key success factors for competing in building supplies retailing in New Zealand are:
- The ability to expand and curtail operations rapidly:
The ability to move inline with the market demand is essential for the operators to maintain profit margins and compete against other operators in the market.
- Ability to negotiate with the regulators:
The contractors should be able to understand the local regulations and make sure that all the development and retailing projects are built inline with the local regulations and code.
- Access to high quality inputs:
A successful company will be based on strong relationships with the suppliers of high quality construction materials and fixtures.
- Compliance with government regulations:
Internal Code Council’s building codes and government regulations must be kept in focus by the building suppliers and contractors in order to be successful in their business operations.
- The ability to alter goods and services produced in the favor of market conditions:
The capacity of the contractors to generate contracts in a variety of building markets can successfully assist the firms in stabilizing cashflows during the economic downturn.
- Ability to recollect the feedback from customers:
A customer feedback management system can be embedded in the operations to build more profitable relationships with the customers. The companies can focus on boosting shares, reducing costs, better retention and encourage positive word of mouth.
- Development of new technologies:
In order to improve business processes for trade customers, new technology development should be a priority, along with electronic trading with suppliers.
- Provision of largest range of products and services to consumers:
A key success factor would be to provide customers with the largest range of products for home improvement at the lowest prices.
- Corporate Social Responsibility:
It is important to emphasis sustainability issues within the operations, along with placing value on social responsibility and environmental awareness while maintaining economic viability.
Question 2:
How much competitive rivalry was there in the industry prior to 2002?
Prior to Bunnings Warehouse entry in 2002, the building supplies industry in New Zealand was dominated by Mitre 10 Mega (in home improvement segment) and Place Makers (in trade markets). Prior to 2003, Mitre 10 had dominated the home improvement segment, whereas PlaceMakers and Carters held the first and second positions respectively in the trade market. ‘Mitre 10 has been a household name in New Zealand since 1974 when it was introduced by 15 hardware retailers who had noted the success of Mitre 10 in Australia.’12 Originally trading as Fletcher Merchants, Placemakers can trace its roots to 1910. The brand name of PlaceMakers was adopted in 1981. Carters’ is the retail operation of Carter Holt Harvey (CHH), a company whose activities in related businesses can be traced back to 1859. Other competitive forces operating before 2002 were ITM building Centres, Hammer Hardware and other smaller firms operating independently from these chains that focus on niche market like Paints, Decoration and Gardening equipments.
Which competitive forces have the greatest influence on company performance today?
Today the major competitive force that has greatest influence on company performance is bargaining power of suppliers. When a group of suppliers is powerful, it would imply that its product is unique or differential and, because of that, it is generally dominated by few companies in the industry to which it sells its products. For example In Australia, Bunnings has partnerships with more than 1000 Australian and international suppliers. Given the breadth of its product line, supply chain management is a key component of its profit and success.
Do the forces differ across the home improvement and trade market segments?
Yes, the competitive forces differ across the home improvement and trade market segments. Home improvement market has been driven by several competitors both on smaller scale and larger scale. Home improvement and hardware retailing consist of a wide variety of products and services related to the needs of the ‘do-it-yourself’ (DIY) customer. Many smaller warehouses have been offering the similar services and products to the similar customers as the big chain of retailers had been providing. So the numbers of competitors in home improvement market are numerous while in the trade market segment the competitors are few. The bargaining power of buyers in the home improvement industry is less than in the trade market segment. The trade segment of the building supplies industry includes a range of companies and individuals providing building and construction services to residential and non-residential customers. These companies/individuals are significantly larger users of building supplies in contrast to the home repairer. As the volume and value of these building contracts increases, trade customers are often able to negotiate more favorable terms from retailers. The bargaining power of customers in home improvement segment is higher as if the consumer is price sensitive and well-educated regarding the product, buyer power is high (Porter, 2004). Hence do it yourself customers of home improvement are more price sensitive as compared to trade market segment.
Question 3
Which strategies are most successful in addressing the competitive forces?
Standardization of specification in order to neutralize supplier’s bargaining power can be an effective measure. It will make it easier to easily switch between the vendors. In order to counter customer power, the companies should expand services like Bunnings initiated DIY workshops, kids play area and cafes for the New Zealand customers. Other customer driven strategies like providing trailer hire, tool renters, key cutting and color matching are good services to get benefit from. In order to capture market share, pricing strategies can be a good strategy. Offering penetration pricing or price skimming can attract potential and new customers. The companies should invest more in products that differ significantly from the rivals in order to temper price wars initiated by the competitors. In order to scare off the new entrants, elevate the fixed costs of competing with each other. In order to limit the threats of the substitutes, offer better value through wider products accessibility.
Question 4
Contrast Mitre 10 and Bunnings in New Zealand. Does either have any competitive disadvantages or advantages? Detail which advantages are sustainable?
Mitre 10 have expanded supplier network in overseas and local market. Mitre 10 is steadily building upon the competitive advantage by providing great pricing and increased range for the customers. Customer service area and staff training is another competitive advantage enjoyed by Mitre 10. Economies of scale through bulk purchasing and cost reduction through synergies are achieved by Mitre 10 in New Zealand. The Mitre 10 MEGA format provides an increased product range and extra services that make the store more of a destination, such as a café, a play area for children and/or a garden center. The addition of drive-through lanes and availability of trailers make it easier to pick up supplies. The Mitre 10 MEGA stores were designed to service the expanding demand from customers for convenience through a one-stop-shop for all their home improvement shopping needs, with the associated slogan emphasizing the greatest range of products at the lowest prices, along with advice from experts and great personal service.
To service larger home builders, Bunnings have operated a number of specialized distribution centers and frame and truss operations. In Australia, Bunnings has partnerships with more than 1000 Australian and international suppliers. Given the breadth of its product line, supply chain management is a key component of its profit and success. The Bunnings Warehouses specifically aim to achieve economies of scope by combining building supplies, gardening and home wares at a single location and economies of scale by stocking over 45 000 products. Discounted prices are used to stimulate demand and visits to the warehouse stores. Bunnings initiated DIY workshops; kids play area and cafés in its Australian stores and have rolled out the same format in New Zealand. Bunnings’ slogan and advertisements feature its price guarantee — to beat competitors’ prices, initially by 10 per cent, but this was increased to 15 per cent when Mitre 10 matched the 10 per cent discount.
Question 5
Which companies are likely to be most affected by the continuing rivalry in the home improvement segment? Why? Will the trade segment be affected?
The most affected companies due to increased rivalry are the small retailers that offer lower priced paints and painting products, car care products, plastic storage boxes, gardening supplies and equipment, barbecues and patio furniture. There are also specialist plumbing, electrical and lighting suppliers who offer an extensive breadth of a particular type of product with margins depending on the quality and type.
References
Porter, M. (2004). Porter Five Forces.
