Competitive Analysis

Porter developed five market forces that can be used to examine an enterprise’s competitive environment. They include the level of competition, suppliers’ and buyers’ bargaining power and influence, entrance hurdles, and the likelihood of new competitors (Dälken, 2014). Due to existing economies of scale from major players like Target, Walmart, and Dollar Tree, threats from new entrants in the grocery sector are very modest. Additionally, the created customer loyalty limits the customer’s ability to switch to an other retailer. Because leading stores like Walmart and Dollar Tree have made a big effort to differentiate themselves from the competition, there is little threat from replacements (Dollar Tree Inc, 2016). Dollar Tree Retailer has differentiated itself as a discount retailer and thus attracting low-end consumers who seem to be highly sensitive to prices. Therefore, these customers are loyal to the retailer leading to the lower bargaining power of consumers despite being aware of substitute products from other low-priced outlets (Dollar Tree, 2015). The retailer obtains its input from a number of suppliers and therefore have the opportunity to lower their bargaining power. Besides, Dollar Tree purchases large quantities of the merchandise at low prices from these suppliers enabling it to offer discounted price to the end customer. However, the competition is intensive between dominant retailers who compete in terms of price, quality, and product and store differentiation (Dollar Tree Inc, 2016).

Technique analysis - IFE, EFE, CPM, BCG matrix, Grand Strategy Matrix, and QSPM

The Internal Factor Evaluation of Dollar Tree considers its internal strength resulting from core competencies and unique capabilities that enable the retailer to attain competitive advantage. For instance, about 35 percent of the merchandise in Dollar Stores are replenished automatically. This automatic replenishment with unique abilities of store’s managers enables the retailer to deliver more than expected value to the customers. On the other side, IFE views the weakness of Dollar which does not necessarily indicate failure of the retailer but capabilities that when utilized does not have a significant impact on firms performance (Daft, 2010). Unique capabilities result from intangible resources which according to the VRIO framework are valuable, rare, inimitable, and non-substitutable (Chen-Yi, Lin, & Chen, 2011, p. 16). The acquisition of the Family Dollar Stores increased the strength and competency of Dollar Tree to expand operations in the middle and low-end markets (Dollar Tree, 2015). In fact, the acquisition continues to facilitate the integration of significant internal synergies like format optimization, effective supply chain management and increased direct sourcing from factories.

The Value Chain Analysis offers a framework that can be used to evaluate the internal strength of Dollar Tree strengths. According to this analysis businesses strengths entails of activities and operations which deliver value to the consumer and reduces costs. Such activities include marketing, inbound logistics, and supply chain operations (David, David, & David, 2016). They interact with aspects like firm infrastructure, technology development, procurement, and human resource management to deliver higher value to the clients. Dollar Tree Stores has an automated front end inbound logistics management system that enhances coordination of order purchase (Dollar Tree Inc, 2016); optimizes transportation; improves shipment documentation and tracking, and enables training of key suppliers. Therefore, the firm has an effective supply chain with shorter turnaround times, reduced transportation expenses, less wastage of time, and efficiency in order management and fulfillment through an online platform (MIQ, 2014).

The External Environment Evaluation (EFE) shows how various economic, political, technological, environmental, technological, and competitive forces affect the business. These factors lead to opportunities to be utilized and threats to be avoided by the retailer (Shojaei, Taheri, & Mighani, 2010). The firm utilizes the coolers and freezers technology to appeal to wide range of customers and increase store transactions. The retailer complies with food regulatory standards by using food stamp technologies, that is, Supplemental Assistance program (SNAP) (Dollar Tree Inc, 2016). Stable economic projections in developing markets create significant opportunity due to rising income, increasing consumer spending power, and stable macroeconomic conditions like inflation, interest rate, and exchange rates (Dollar Tree Inc, 2016).

The Competitor Profile Matrix (CPM), gives the strength of Dollar Tree Retailer using the critical success factors (CSF) compared to key competitors like Walmart. The CSF, in this case, include innovation, brand name, customer service, technological competence, and price competitiveness (Sohel & Rahman, 2014). From market analysis, Dollar Tree enjoys advantages related to strong brand recognition, significant bargaining power with both suppliers and customers, large economies of scale, and channel dominance. Dollar Tree focuses on maintaining a flexible sourcing of its merchandise to enable display of a variety of products that are sold out. Also, compared to other competitors, Dollar Tree locates its stores in neighborhoods with relatively low operating and rental costs to maintain its low-cost offering of products to target customer group. This enables the retailer to offer fixed point price of $1.00 for its merchandise across many stores (Dollar Tree Inc, 2016).

The BCG Matrix divides the various strategies of Dollar Tree into Star, Cash Cow, Dogs, and Question Mark (Udo-Imeh, Edet, & Anani, 2012). The cash cow strategy will lead to increased market share and establishment of stronger brand positioning. The star initiative will lead to the high market growth of the retailer but will need substantial investment to facilitate growth. For instance, investing in emerging economies like India and China has high potential, but the firm needs to carry out extensive market research and invest in promotional initiatives (Dollar Tree Inc, 2016). The emerging markets indicate significant growth opportunity and excellent profit in the long-run because of more individual are earning middle-income and are more price sensitive. Other current initiatives resemble the dog since they offer low profits to the retailer and thus it is advisable to harvest them or divest in such areas (Udo-Imeh et. al, 2012). Lastly, the question mark strategy is not certain in offering substantial profits to the retailer. For example forming a strategic alliance or focusing on high-end costumers may not offer promising returns to the Dollar Tree Stores (Dollar Tree, 2015).

The Grand Strategy Matrix acts as a matching tool in designing strategies to be undertaken by Dollar Tree based on market growth and competitive position. This can also be facilitated through the use of Quantitative Strategic Planning Matrix (QSPM). The QSPM assimilates and prioritizes the key competitive information (David, David, & David, 2016), external, and internal competency of Dollar tree. The identified competitive position of Dollar Tree Stores is low priced products and development strong brand recognition in middle and low-end markets. The two attributes make Dollar Tree to focus more on its established competitive edge across the low income earning customers (Dollar Tree Inc, 2016).

Alternative Strategy Generation

Due to the rapid growing retail and supermarket industry with a strong established competitive edge in middle and lower end markets, the Dollar Tree has a number of strategies like:

Penetration in developing economies in both South America and Asia. These markets fall under the star in the BCG Matrix.

Forming a strategic alliance with retailers in high-end market to attract rich customers who are price sensitive. This will entail offering both multi-price and fixed price point strategies.

Concentrating on the current market which represents the cash cow through offering new products to take advantage of brand reputation, economies of scale, and customer loyalty.

References

Chen-Yi, T., Lin, J., & Chen, C.-H. (2011). Core Capability and Core Rigidity: Organizational Memory Perspective. Journal of Business Management, 28(3), 1-31.

Daft, R. L. (2010). Organization Theory and Design (10th ed.). Mason: Cengage Learning.

Dälken, F. (2014). Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Business. Enschede: University of Twente.

David, M., David, F., & David, F. (2016). The quantitative strategic planning matrix: a new marketing tool. Journal of Strategic Marketing, 8(1), 1-12.

Dollar Tree. (2015, July 6). DOLLAR TREE COMPLETES ACQUISITION OF FAMILY DOLLAR. Retrieved from http://files.shareholder.com/: http://files.shareholder.com/downloads/DLTR/0x0x837944/24D82092-31D0-40CE-9784-38D5FED4900D/DLTR_News_2015_7_6_General.pdf

Dollar Tree Inc. (2016). Dollar Tree, InC: Form 10-K. Virginia: Dollar Tree.

MIQ. (2014). Dollar Tree Transforms Transportation Management Improvements into Supply Chain Savings. Los Angels: MIQ.

Shojaei, M. R., Taheri, S. N., & Mighani, M. A. (2010). Strategic Planning for a Food Industry Equipment Factory, Using SWOT Analysis, QSPM, and MAUT Models. Asian Journal of Management Research, 1(1), 759-772.

Sohel, S. M., & Rahman, A. A. (2014). Competitive Profile Matrix (CPM) As a Competitors’ Analysis Tool: A Theoretical Perspective q. IJHPD, 3(1), 40-48.

Udo-Imeh, P., Edet, W., & Anani, R. (2012). Portfolio Analysis Models: A Review. European Journal of Business and Management, 4(18), 101-121.