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Generic Strategies
(Cost Leadership, Differentiation, Focus - DC)
(WRT Business-Level: Product Differentiation, Market Segmentation)
The way in which target consumers are classified according to their needs points to a critical
difference between the two companies. Lowe’s knows that the home has greater value than
that determined by property value and tax assessments. The home constitutes a personal
space, a “castle, a retreat, a place to grow and a place to make your own.” Soft, warm, fuzzy,
calm and secure – blue.
Home Depot’s primary consumers are men with hammers and hard-hats. They want nails,
wood, Jackhammers, and drill bits. They wear bright orange safety vests and steel-toed boots.
The warm, furry, blue-slippers approach can by added latter, by the female end-users of their
construction projects.
Consider the toilet. At Home Depot, you may want 100 units of this particular plumbing fixture.
But at Lowe’s it’s not about gallons/flush and copper pipes; it’s about a very personal addition to
a clean and comfortable bathroom.
But while warmth and comfort may involve fuzzy blue slippers, Lowe’s also knows that it is the
work of professional contractors and builders that makes the American Dream – the home – a
reality. Therefore, Lowe’s commitment extends also to this group that, not incidentally,
constitute Home Depot’s traditional target. Lowe’s has established multi-directional customer
responsiveness – soft blue backed by the necessary hard orange foundation -- while Home
Depot struggles to add a softer touch of baby blue to its market position.
Porter’s 5
(Power of Suppliers, of Buyers, Substitutes, Risk of Entry – Potential Competitors.
Efficiency Issues
Home Depot’s response to loss of market share to Lowe’s is not one of changing overall market
position; for Home Depot feels that Lowe’s benefits from current economic factors that are only
temporary. When the real estate bubble bursts, so will Lowe’s advantage. Therefore, Home
Depot implements an increased emphasis on customer responsiveness – a factor of competitive
advantage which transcends and is not dependent on temporary economic anomalies.
Additional responses by Home Depot include expansion of its consumer appliance selection to
attract more “foot traffic”, a decrease in the rate of new store openings, centralizing purchasing
operations, and decreasing its stock of certain merchandise. Hence, Home Depot plans to
implement an organic, or internal differentiation of sections within its existing stores. That is,
Home Depot expects to “squeeze” more sales out of existing stores.
4-Factors of CA
(Superior Quality, Efficiency, Innovation, Customer Responsiveness.)
Lowe’s aggressive expansion into large metropolitan areas was partially inspired and is
supported by the company’s general marketing position strategy of “providing top brands and
services at competitive prices.” Lowe’s, therefore, believes that its customers (1) demand top
quality brands and (2) are willing to invest their time in comparing prices.
Home Depot’s expense controls and cost initiatives are it core competencies and continue to
sustain its earnings. This implies that Home Depot enjoys greater economies of scale and
efficiency in cost management than does Lowe’s.
Lowe’s, however, employs a centralized and integrated logistics, based not so much on
economies of scale as on flexibility. Every product of every vendor is considered in determining
the most efficient way of maintaining merchandise inventory. This method, through which
Lowe’s expects to decrease its COGS per product, involves four distribution methods: flowing
goods through regional centers, shipping by commodity-focused consolidation, reloading
distribution centers, and direct shipment to stores from vendors. Accordingly, this strategy is
calculated to reduce distribution costs as a percentage of COGS. The goal here is the lowest
possible landed cost of every product Lowe’s carries.
Life –cycle
(Embryonic, Growth, Shakeout, Mature, Decline)
(Pressures arising from the shakeout phase would point to consolidation as means to save
funds for the approaching mature phase.)
“The failing equity markets and economic uncertainty,” says Lowe’s, “have not hurt the [home
improvement] business so far.” But Lowe’s retail success in the current unfavorable economy is
not a paradox; for two primary reasons: (1) failing equity markets and “tangible assets”, such as
real estate, are inversely related in terms of consumer demand, and (2) the lowest mortgage
interest rates in 40 years has motivated the refinancing of existing real estate, with the freed
funds being used on home improvement expenditures.
Home Depot, while also a supplier of home improvement related products, has traditionally
targeted professional contractors and developers, both of whom are adversely affected by the
slow economy. Therefore, Lowe’s segmentation strategy of targeting the single-family
residential home-improvement market confers a competitive advantage to the company, while
Home Depot’s traditional “ professional-contractor” push has discouraged this group of
consumers. The current economy, therefore, works in favor of Lowe’s and to the disadvantage
of Home Depot.