Business organizations always prepare their strategies for adapting to challenging business environment. Business is always influenced by important stakeholders and their satisfaction is always important for business. In this report, the business performance of Ocado which is a British online supermarket has been discussed and this sheds important knowledge about the company.
1. Overview of business operation and structure
Business structure and operation
Ocado is a British online supermarket which focuses strongly on the use of technology to provide the best possible customers’ experience. Competitors include Waitrose and Tesco. They operate in the tertiary sector; supplying goods ranging from food to homeware and clothes. With over 550,000 active customers, their main focus is to “provide the customers with the best shopping experience in terms of service, range, and price, which builds a strong business and delivers long-term value for the shareholders”. They are a PLC- Public Limited Company so their shares can be purchased by both privately and through trades on the stock market (Perreault et al, 2011).
This can be seen as a huge advantage; for example, Ocado can easily pay off any debts and introduce new products and projects quickly stimulating cash flow, without having to obtain finance/funding. As Ocado has limited liability if the business fails shareholders are not financially responsible and owners cannot lose their own property, unlike sole traders. As compared to its competitors the company does not have any chain of stores and performs deliveries from warehouses. The company follows a divisional structure that drives the management to ensure structural planning and excellence in business through the divisional structure of the firm.
Key stakeholders and significance
A stakeholder can be a group, individual, organisation or simply anyone with an interest in the business. They can be internal or external; Examples can be found on the left. Stakeholders are seen as very valuable by the company as their external input and point of view can influence the company in making better decisions, making them more profitable in the long run. Furthermore, it’s much easier for them to predict potential complications. On the other hand, they can also block progress as stakeholders can be very fixed on making choices which represent their own interests. Internal stakeholders of the company are employees and managers who are essential for organizational growth and performance. Employees are determinant of daily operational performance which supports the organizational performance.
Managers are decision makers and followers of instructions of top management which helps Ocado to maintain its online retail business. Among external stakeholders customers and suppliers, the government is significant. Customers are sources of profits for business more specifically it can be said that the revenue of business of Ocado is dependent on customers of the company (Solomon et al, 2014). Suppliers help the business achieving required products to ensure availability among consumers. Therefore marketing and business performance are dependent on suppliers considering the matter that they provide support to the business of the company. The government expects compliance with regulations by the company and without complying rules of business and industry laid down by government business cannot be sustained by the company.
Analysis of performance of the business
Ocado’s performance consistently exceeds expectations in many areas including finance, customer service, eco-friendliness, and business growth. Recent financial reports indicate good financial health and a huge potential for growth. Their Q3 2018 trading statement shows an 11.7% increase in retail revenue (from 2017) and a 16.8% increase in solutions revenue. Their customer base has expanded from 602,000 to 679,000 in 12 months.
External indicators also show that 91% of customers would recommend Ocado to friends and family rating them at a solid 4.56/5 (Reviews.IO 2018). They’ve retained customers and attracted new custom through successful marketing, which has enabled their 2017 revenue to hit £1.1 bn with a pre-tax profit of £11.9m. All of the above indicate Ocado are following their CSR and achieving their strategic objectives. It also indicates good customer service, high customer retention which can be supported by Ocado’s 98.8% order accuracy and 95% punctuality rates (Chaffey and Ellis-Chadwick, 2012).
Ocado has been experiencing a transformational phase in its business and performance. The firm has exclusive innovation and technology to support grocery business for meeting changing and growing needs among consumers. During the last 6 months, the firm has got into collaboration with important and innovative retailers so that shopping experiences for existing and potential customers can be significantly improved.
In respect of growth and service offering, Ocado is consistently outperforming competitors. A customer fulfillment center of state of the art facility has been opened by Ocado which expects to be a biggest automated warehouse and the firm will be able to display adaptability as well as the efficiency of business platform. Hypermarket base value on average basis was static and was recorded £108.18. 500 new products have been added by the firm to its organic ranges. Ocado products represent 10 percent of the total organic markets of the United Kingdom. More than 650 new jobs have been created by the firm.
2. Vision, Mission, and Purpose
Mission and vision statement of the business
Mission and vision of the firm must have clear and concise notion of business and related values to customers and society. The vision of the firm, therefore, consolidates its proposition for serving needs among customers. The vision statement of the firm is to be highlighting business operation to support better and seamless shopping experiences for customers.
The mission statement of the firm is to be prepared for creating awareness among customers and society and stakeholders. This needs to be in the line of the objective of making better shopping process for customers along with consideration for society and the environment.
Value added by the business to key stakeholders and society
The business of Ocado always remains purposeful to serve important stakeholders and society. This is implemented by the firm’s operational outlook to justify growth strategy by focusing on the betterment of stakeholders who are not separate from society (Kirti? and Karahan, 2011).
The business purpose hinges on the achievement of satisfaction among customers by providing them with better shopping experiences. Focus on job opportunities remains highlighted in its social agenda and it was reflected in the creation of additional jobs which is deemed to be beneficial for social economic upliftment. Product quality is uncompromised and strategy of developing organic products is a vital move to uphold the health consciousness among people.
The customer fulfillment center is poised for becoming an effective and large warehouse for facilitating products availability and supply chain. Ocado foundation was started in 2015 for becoming home to charitable activity. Sustainable business and charity for people are benchmark performances of the firm that constantly looks to increase value addition to stakeholders and society. The firm in this aspect looks for engagement of its employees and stakeholders for building better business functions to support social performances that could more result into satisfaction among customers (Naidoo 2010).
Importance of incorporating wider social purpose in the business
Business functions with commercial resonance cannot achieve success in competition for the long run. Therefore need of consideration for society is of utmost importance to support measures for social benefits for society. This always gives its return back to business in several forms which are improved brand image and satisfaction among many customers and stakeholders who like a greater perception of the business. This, in the long run, is helpful for supporting the business to achieve its commercial goals by more sales of products being possible due to better image and high perception based on social activities. This becomes easy for Ocado to perform and achieve social purposes if are incorporated in the vision and mission of the firm from the very outset (Slater, Hult and Olson, 2010).
3. Economic, legal and market environment of the Ocado
Pestle Analysis
Political:
Regulations and tariffs, Brexit, government laws Trade regulations, and tariffs can change restricting the importation, exportation, and items which can be sold in stores. Furthermore, the value of the pound has decreased a lot due leaving the EU in the near future, making import a lot more expensive. The government could implement new health guidelines which Ocado’s products need to comply with- if they fail to do so legal action can be taken against them.
Economic:
Interest and inflation, unemployment rate, level of disposable income, the skill level of the workforce. Economic factors have a direct effect on customers buying behavior. An increase in interest rates and inflation will lead to a price increase in primary and secondary business sectors. If the unemployment rate increases, Ocado may have to lower their prices. Decreased level of disposable income, Ocado may have to discontinue expensive products or limit their ranges. Inadequately skilled workers, further investment in training and development are causes of this (Fifield, 2012).
Social:
Lifestyle trends, attitude- environmental consciousness, population growth rate are important determinants of social influence on business. People of the country are economically sound and can ensure the firm of better spending. This positively influences the firm’s business. Health consciousness among people along with environmental awareness has largely shaped the firm’s business outlook which embraced consideration of organic products and ethical business operation including ethical sourcing and least impactful business to nature and environment (Teece, 2010).
Technological:
Quality and pricing, production efficiency, automation are driven by innovation which is not possible without technology. The rate of technological application is huge in numbers in the retail sector in the UK. The firm is poised to achieve better expertise with the additional innovative engagement of RFID technology. Automated warehouse of the company is an example of technological excellence which is likely to be an effective customer fulfillment center (Morgan, 2012).
Legal:
Consumer law, employment law, health, and safety law have a profound influence on business and these regulations need to be abided by so that business will not face any penalty. Law of UK is considered dynamic and capable of protecting organizational interest as well as employees. Business finds protection from patents, copyright, and intellectual property rights. Employee relations are influenced by employment law, health and safety rules, and discrimination law. Consumer Protection Act is also highly vigilant (Lee and Carter, 2011).
Environmental:
Climate change, Laws regulating environment pollution, Recycling.
Climate change could potentially affect growth crops, limiting availability. If the demand outweighs the supply, prices will increase. A law which requires implementing electric or hydro vans could be implemented in order to reduce carbon footprints. Recycling of products is a highlighted aspect of business driven by strict environmental policy. Customers are requested by team members of Ocado to return old carrier bags to be recycled into Ocado bags (Nandakumar, Ghobadian and O’Regan,2010).
Porter’s Five Forces Analysis
Bargaining power of suppliers:
Suppliers have reasonably low bargaining powers within the retail industry. Competition between suppliers is extremely high. Therefore in order to stay competitive, they need to compromise on the prices set by the retailer, in this case, Ocado. Due to the increasing, broad population of suppliers, it’s extremely easy for retailers to switch to suppliers which offer cheaper products or better deals for their own benefit. Another factor which reduces suppliers bargaining power is their high availability of undifferentiated supply. Ocado stores some of the most popular brands, including Cadbury’s and Unilever, if every supplier can fulfill this demand or substitute it for less, the initial supplier cannot offer extensive pricing, they need to adjust to competition, therefore their bargaining power is low (Nath, Nachiappan and Ramanathan, 2010).
Bargaining power of buyers:
Customers in the grocery industry have particularly high bargaining powers. The lead up to the predicted 2020 recession has made customers very price sensitive. The amount of people shopping in ‘discounters’ e.g Aldi and Lidl is increasing as consumers search for cheaper alternatives. The switching cost between one retailer and another is extremely low therefore Ocado needs to adjust their pricing in a way which enables them to remain attractive. Another factor which increases buyers bargaining power is the availability of undifferentiated supply between retailers, therefore unless Ocado has a range which is exclusive to them the only way they can remain competitive is in the price (Mitchell, Wooliscroft and Higham,2010).
Existing rivalry:
The retail industry in the UK confronts with intense competition. Almost every firm is eager to kick off online retail shopping segments for their customers. Ocado faces competition from many firms such as Tesco, Lidl, Aldi and so on.
The threat of new entry:
The retail industry is capital intensive with the large requirement of labors to support business functions. Moreover, businesses look to implement innovation which hampers cost-effectiveness as long as quality aspects are the prime determinant of products’ acceptance among customers. Thus new firms are not enough capable to venture into the retail sector (Fahy and Jobber, 2012).
The threat of substitutes:
Retail firms in the market look to justify the changing pattern of needs among customers and this shape their strategies of making diversified products available for customers. Therefore products are very close in respect of features and usefulness, having risks of replacement by another with superiority quotient. Ocado by considering this has focused on organic products for making consumers’ perception high about products for increasing sales possibility more in support of online retail in comparison to competitors
(Sharma et al, 2010).
The concept of visible and invisible hands and impact on the organization
The invisible hand is a phrase that denotes unobserved force that helps supply and demand of goods in a free market in reaching equilibrium. This helps people to trade without barriers among themselves and markets will march closer to the achievement of positive output. As per demands and capacity price will be decided by firms and customers get the better products at the best prices. This adversely influences organization as with no restrictions from government firms will be engaged in an unethical price war that could spoil organizational growth and consumers’ interest
(Sharma et al, 2010).
‘Visible hand’ concept is based on the harmonized decision reached at by many economists to favor government to compete with market changes. In this point, it is also essential that the visible hand of policymakers is important to achieve economic results. For ensuring the self-correcting process in growth attainment, the concept of visible hand is effective to ease off the large burden of debts. On the other hand innovation and risk-taking approach are not always rewarded and the creation of wealth is not encouraged always and this is the reason organizations do not view risk-taking approach and business expansion likewise. This stands adversely in the making of profits and overall profitability of business (Sharma et al, 2010).
Two different regulations and impact on the organization
The government of UK launched legislation in England and the legislation was Single Use Carrier Bag Charging legislation in England. However, the management of Ocado was skeptical of if customers would give back carrier bags to the company for recycling. Keeping this in consideration, the company took the decision of building on present recycle plan with an offer of 5p for each bag given back carrier bags of other retailers. Consequently, maximum bags were given back. A huge portion of funds out of charge get into sponsoring Bag Buy Back Scheme. This supported the aim of the legislation framed by the government. This move was appreciated by many stakeholders and the image of the organization got more improved (Sharma et al, 2010).
In the year 1998, the working time regulation was introduced in the UK. The purpose of the act aimed to make it certain that UK employment regulations follow the working time directive in Europe. This has mandated organizations for following employment laws in each province of the nation. Coordination on part of organizations between working time regulation and working time directive was much sought after. Accordingly, organizations in every sector have their focuses on maintaining the working time of their employees. Labour intensive sector like the retail industry is always influenced by this regulation (Sharma et al, 2010).
Conclusion
Firms need to have better knowledge of competition, market and business environments for making better marketing planning. Ocado is powered by innovation and technology although competition for the firm is high in the retail sector of UK. The firm is on the path of consistent development and growth. Market conditions and external environment of the firm have been discussed in this report.
References
Chaffey, D. and Ellis-Chadwick, F., 2012. Digital marketing: strategy, implementation and practice (Vol. 5). Harlow: Pearson.
Fahy, J. and Jobber, D., 2012. Foundations of marketing.
Fifield, P., 2012. Marketing strategy. Routledge.
Kirti?, A.K. and Karahan, F., 2011. To be or not to be in social media arena as the most cost-efficient marketing strategy after the global recession. Procedia-Social and Behavioral Sciences, 24, pp.260-268.
Lee, K. and Carter, S., 2011. Global marketing management. Strategic Direction, 27(1).
Mitchell, R.W., Wooliscroft, B. and Higham, J., 2010. Sustainable market orientation: A new approach to managing marketing strategy. Journal of Macromarketing, 30(2), pp.160-170.
Morgan, N.A., 2012. Marketing and business performance. Journal of the Academy of Marketing Science, 40(1), pp.102-119.
Naidoo, V., 2010. Firm survival through a crisis: The influence of market orientation, marketing innovation and business strategy. Industrial marketing management, 39(8), pp.1311-1320.
Nandakumar, M.K., Ghobadian, A. and O’Regan, N., 2010. Business-level strategy and performance: The moderating effects of environment and structure. Management decision, 48(6), pp.907-939.
Nath, P., Nachiappan, S. and Ramanathan, R., 2010. The impact of marketing capability, operations capability and diversification strategy on performance: A resource-based view. Industrial Marketing Management, 39(2), pp.317-329.
Perreault, W.D., Cannon, J.P. and McCarthy, E.J., 2011. Basic marketing: A marketing strategy planning approach. New York, NY: McGraw-Hill Irwin.
Reviews.io. (2018). Ocado Reviews – Read 2,119 Genuine Customer Reviews | www.ocado.com. [online] Available at: https://www.reviews.io/company-reviews/store/ocado [Accessed 16 Dec. 2018].
Sharma, A., Iyer, G.R., Mehrotra, A. and Krishnan, R., 2010. Sustainability and business-to-business marketing: A framework and implications. Industrial Marketing Management, 39(2), pp.330-341.
Slater, S.F., Hult, G.T.M. and Olson, E.M., 2010. Factors influencing the relative importance of marketing strategy creativity and marketing strategy implementation effectiveness. Industrial Marketing Management, 39(4), pp.551-559.
Solomon, M.R., Dahl, D.W., White, K., Zaichkowsky, J.L. and Polegato, R., 2014. Consumer behavior: Buying, having, and being (Vol. 10). London: Pearson.
Teece, D.J., 2010. Business models, business strategy and innovation. Long range planning, 43(2-3), pp.172-194.
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