Introduction

Introduction

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Introduction

The aim of this coursework is to use economic theory and explain how
supermarkets in my area compete for custom. To provide a fair
competition, the four dominant super markets, Sainsbury, Asda, Tesco
and Morrisons are chosen. I shall investigate how the ‘big four’
compete for profit against each other in Leicestershire.

Research Plan:

To prevent complications the class is divided into 4 groups according
to their local supermarkets and accessibility. Each student is
provided a price check list with a complete list of common items and
compares each different supermarket’s product listing.

This is the basic plan but comprehensive analysis and research
techniques shall be started later on as we familiarize with economic
skill and business brain of these clever large firms.

Competition Theory:

The medium in which a monetary exchange on a basis of business values
takes place is known as The Marketing System or The Marketing Industry.

Now The Market is such a place where buyers and sellers meet
(outdoor/indoor) to exchange goods and services for a monetary value.
The Buyer is actually the customer, consumer or the general public.

In the U.K. Market is more defined as a place of competition, where
survival of the fittest is the only necessary skill. A market can be
an opportunity for success or a road to downfall.

There are two kinds’ major kinds of businesses in a market that are
Product Orientated Businesses and Market Orientated Business.

A Market Orientated Business is where the focused product is produced
first and then a market place is searched for it.

Whereas,

A Product Orientated Business is where the market environment and its
demands are recognized first and then the product manufactured
accordingly. This process of discovering the needs and investigating
opportunities in a market is called Market Research. A market
orientated business is more likely to have a Marketing Budget as it
has performed market research and knows the pros and cons of the
marketable product and therefore can predict a financial plan for a
specified period of time and value , say a ‘5 years plan of 1million
pounds’.

The market is risky and tricky place for both buyers and sellers. The
sellers want to drain the maximum money out of the public pocket. The
seller’s goal is to sell a.

Product for the maximum price and the buyer’s is to buy a product for
the minimum cost. In order to make their goals not
coincide, the sellers try to provide satisfaction for the products
they sell. It’s all about the customer needs.

For example; if a manufacturer (Asda) decides to enter the toy market,
the firm will do a market research and try to predict the choice of

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toys that children will buy. This can be predicted by following a past
trend as children’s toys are often based on popular cartoons and
famous fairy tales.

All this serious research and investigation is done by The Marketing
Department that every large firm or business contains. The typical
layout of the department is the following;

1. Regional Sales
2. Research and Development (‘R and D’The main sector of the Dept.)
3. Promotion and Advertisement
4. Distribution

This department’s objectives are to increase sales and revenue,
maintain market share, improve product image, develop and improve
products. This department is the most important part of any competent
business. The ‘R and D’ sector works as the brain of a firm.

Marketing Objectives:

1. Increase profit and sales revenue.
2. Target a new market/ market segment.
3. Improve and Develop Products.
4. Provide a customer service.

S.W.O.T. Analysis:

This is a technique used to access a product in the market. The
abbreviated term, “S.W.O.T.” stands for ‘Strengths, Weaknesses, Opportunities
and Threats’.

Market Segmentation:

Very crucial for market research, as it breaks down the market as a
whole into sub-groups;

Categories are:

1. By income
2. By age
3. By region
4. By gender
5. By use of product
6. By lifestyle

When a new product is set for a market and does not meet all of the
above categories of the customer, a ‘gap’ is left in the market.

Now suppose Sainsbury wants to release a new product and wants to win
over its rivals (Asda, Tesco, and Morrisons), the special or unique in
one way or another. It must have something more, other stores do not
provide or make the consumer think that he is buying the same kind of
product from this store, but for better value (bargain) as it has more
features. What they can do is to give it a Brand name, which no one
else can copy or make a unique packaging and advertising style.

All these activities can be summarized into the ‘4 P’s, which are:

1.Product(-Itself, design and quality)
2.Price
3.Promotion
4.Place

5.Packaging; Economists still debate over whether to add the 5th P or
if its included in Product and Pricing.

All these activities take place in The Marketing Mix, i.e.; term used
for the total activities talking place in a market. All the
information in the previous pages is eventually used to carry out a
market research.

Market Research:

Market research is used to find information about demand of consumers
about a product in the market. Information achieved can be of 2 types;

1. Quantitative Information:

Answers questions about quantity of something. For example: What
quantities of children have PlayStation2s’?

2. Qualitative Information:

Answers questions where an opinion or judgment is necessary. For
Example: Why do more women than men shop at B.H.S.? .

Information is like the medium in which research is carried out, but
research itself has 2 types;

1. Primary Research(Field Research):

Collection of original data via direct contact with existing
customers. Primary research is costly and involves,

* Questionnaires : A set of questions answered by potential
customers.

* Interviews : Face to face talks and rendezvous.

* Observations : Studying consumer spending behavior or
recordings.

* Consumer Panels: Group of people who agree to provide
information on a specific product over a specific product over a
specified period of time.

2. Secondary Research(Desk Research):

Use of primary research data or ‘potential data’ and making it
available for others to use.

Coursework Relativity:

My coursework is investigation of how supermarkets compete for custom.
For this I am going to design a questionnaire. Questionnaires are
usually expensive to carry out, provide consumer opinion about a
specific product and detailed information can be gathered, but it can
be misleading if the questionnaire is carried out by incorrect means
and also is time consuming. I shall include two strategies in my
questionnaire;

* Firstly I am using either a Random Sample or a Stratified Sample,
as this will prevent bias or unfair results.

* Secondly I am using the rule of market segmentation through which
my questionnaire can include categories of Age, Income etc.

Accuracy and Error Prevention:

I must be extremely cautious on the ways I ask the chosen questions.

* One has to be not too direct but not completely blunt either.

For Example when questions are directly asked like,” Can you afford
this product?” or “Would you buy our product instead of Tesco’s?”, the
customer would likely say, “Yes I can afford it and I may buy it.” As
he/she does might feel insulted/degraded saying, “No I can’t afford
it.” Or may say,” Yes” not to offend (the questioner) you.

* Questionnaires must be kept simple, meaning short easy questions.

* One cannot expect the customer to give detailed answers. So,
Multiple Choice Questions (M.C.Q.s) are designed where the
customer simply tick or circles according to choice.

* Straight forward! No more than 12 questions.

* Another point I myself have predicted is that try not to make the
consumer nervous or degraded, for instance I know I felt weird
when this lady in town was asking questionnaires and was talking
as if she’s my mum and then even ticking the answers for me
herself!?

* My point is that public who answer the questionnaires would rather
do it when you yourself are not around. (Anyone would) I feel
awkward when someone stands right behind me waiting for me to
finish, more like an exam.

Give more privacy!

* It may also be wiser to leave a stack of the questionnaires at the
checkout where consumers can pick and answer at will and then drop
it in a box.

It may be more time consuming but this way more accurate and honest
replies . and honest replies can be achieved.

* On the contrary if you stand at the exit and ask customers to fill
the papers, many might just take it off you because they do not
want to offend you by saying, “No” or make you feel rejected. They
may feel sort of forced into it.

Accuracy and Reliability of Results:

* Even though Information from the results is obtained, it must not
be used straight forward and assumed it’s correct.

* The result is never 100% truth, but the nearest estimation,
therefore a very large sample (80) can be collected at first then
40 of them can be picked randomly from the total result of 80.

Example of a good question:

Circle your choice:

Q: If Asda, Sainsbury, Tesco and Morrisons are nest to each other,
where would you go?

a) Sainsbury
b) Asda
c) Tesco
d) Morrisons’

· When designing a questionnaire, you should have in mind that you are
designing a ‘Questionnaire for Dummies’.

Questionnaire

Your choice can make a difference!

Sainbury-Asda-Tesco-Morrisons’

- How many times do you shop?

a) Over once every week
b) Every week
c) Every month
d) Over 2 months

- Where do you usually shop?

a) Sainsbury
b) Asda
c) Tesco
d) Morrison’s’
e) Other

- You go there because its’

a) Cheap
b) Quality
c) Convenient(near)
d) Other(If so, please state):______________________________

- You Usually spend each time:

a) Over 5
b) Over 15
c) Over 30
d) Over 50…

- The worst supermarket is:

a) Sainsbury
b) Asda
c) Tesco
d) Morrison’s

- It’s the worst because its’

a) Too far
b) Too expensive
c) Poor service
d) Lacks quality
e) Other(If so, please state):________________________________

- If Asda, Sainsbury, Tesco and Morrisons are nest to each other,
where would you go?

a) Sainsbury
b) Asda
c) Tesco
d) Morrison’s

- You live in the area:

a) Oadby
b) Grange
c) Evington
d) Beaumont leys
e) High fields
f) Meadows/Dales
g) Other

- Your monthly income is:

a) More than 500
b) More than 1,000
c) More than 3,000
d) More than 6,000
e) More than 10,000
f) Undisclosed/-

- You travel by:

a) Foot/cycle
b) Bus/taxi(public transport)
c) Private transport
d) Other

- You are in the age group of:

a) 10+
b) 16+
c) 20+
d) 35+
e) 40+
f) 55+

Market Exchange Rate:

An exchange rate is the price of one currency in terms of another.

This is very important to perform a business of import or export
between countries with different currencies. Currencies are changed by
people importing or exporting goods and services or by
speculators(people who study fluctuations in currency rates and buy
them when low /sell when high, therefore making profit).

The Exchange Rate changes because of;

i. The interest rate changes.
ii. Problems in balance of payment
iii. Political/Economical changes
iv. Inflation

If these differ or any one of these factors differs, then drastical
changes occur in money value. For example; If the value of the
Sterling Pound falls then traveling abroad (holiday packages) become
more expensive. Therefore in Economic Theory or Marketing Mix, if the
value of the British Pound (Sterling Pound) falls, then imports will
become more expensive hand exports will get cheaper.

I myself call this the Pound rate-exchange rule and personally have
developed a formula, i.e.:

Ø Pound Price of Export----(eq1)

Ø Pound Price of Import----(eq2)

The Effective Exchange Rate:

The trading partners of Pound may include the Dollar, Euro, Yen,
and Riyals. Hence the value of Pound against all the trading partners
is called the Effective Exchange Rate. One of the very important
competitors is the American Dollar, so the value of Pound
(Sterling) against the Dollar is known as the Sterling-Dollar Exchange
Rate.

The effective exchange rate tends to fall against other currencies
like the $Dollar and the Yen.

Economic Cycle:

Also known as the Business Cycle is the ups and downs that somewhat
occur simultaneously in most parts of an economy. The ‘Cycle’ refers
to the shifts over time between periods of rapid growth (success),
alternating with periods of decline (stagnation).

These cycles do not have a regular pattern of ups and downs and no
two cycles are the same (or identical), hence they ‘fluctuate’.

An abstract business cycle

It’s hard for economists to predict these economic cycles. The main
types of Economic/Business cycles enumerated by Joseph Schumpeter and
others have been named after their success and discoveries:

1. Kitchin ‘ Inventory Cycle’
2. Juglar ‘ Fixed Investment Cycle’
3. Kuznets’Infrastructure Investment Cycle’
4. Kondrateiv Wave or Cycle

Price Elasticity of Demand:

Also abbreviated as P.E.D., is a kind of elasticity which measures the
responsiveness of quantity demanded of a good to its price.

Price elasticity of demand is measured as the percentage change in
quantity demanded that occurs in response to percentage change in
price. For Example: If in response to 10% the fall in price of good,
the quantity demanded increases by 20%. The price elasticity of demand
would be 20% / (-10%) = -2.

So, the P.E.D. is negative; \frac{0.2}{-0.1}=-2

Background for Supermarkets in the United Kingdom:

The UK supermarket sector is dominated by Sainsbury, Asda, Tesco and
Morrison’s, which are the only chains which operate full scale
superstores of 40,000 square feet (3,700 m²) or more. They are all
fully national; there are no regional supermarket chains left in the
United Kingdom which operate superstores, just a few small ones which
operate smaller stores. The "Big 4" had a combined share of 74.4% of
the UK grocery market in the 12 weeks to 24 April 2005 according to
retail analysts TNS SuperPanel Tesco is becoming so dominant (its
market share passed 30% in mid 2005, nearly double that of second
placed ASDA) that it is beginning to be seen as being in a tier on its
own, followed by three runners-up.

Somerfield is the fifth largest United Kingdom food retailer, as
verified by Wikipedia Encyclopedia but it does not operate
superstores. In February 2005, the Baugur Group, which is already the
controlling minority shareholder of the Big Food Group, parent company
of Iceland, made a takeover proposal for Somerfield. At least one
other party has since made a counter offer.

Marks and Spencer and Waitrose are the most upmarket national
supermarket chains (although the former is also the UK's largest
clothing retailer, and is often not perceived as a supermarket at
all). They trade from medium and small sized stores.
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