The organization and the selected trend
The aim of the paper is to delve into the importance of innovation in the retail sector. the author has taken the Australian supermarket chain, Woolworths to base his study on.
Woolworths is the largest Australian chain of supermarket based in Bella Vista, New South Wales. The retail chain is a subsidiary of the Australian business conglomerate, Woolworths Group listed on ASX. The supermarket operates in more than 900 locations under the leadership of Brad Banducci, director. The innovative trend of the supermarket chain lies its marketing strategy which has rendered it the highest position in the Australian retail industry (woolworths.com.au, 2018).
The innovative trend of the Woolworths supermarket chain is its aggressive marketing strategy which rests on its deadly combination of product, place, price and promotion. The supermarket chain serves a large consumer base using this marketing strategy and generates immense revenue. The following section would point out how the supermarket chain implements innovation in these four areas:
Product is the first pillar of innovation of Woolworths which is reflected in the vast product line of the retail giant. The product line of the retail giant stands on as many of fourteen product segments each having several components. They main segments of products which the Australian retail company sells are fruits and vegetables, meat products, bakery, dairy and eggs, pantry, freezer, drinks, liquor, front of store, pet, baby products, health & beauty, household and lunch box. An analysis of each of these segments would exemplify the high degree of innovation Woolworths adopts. For example, the supermarket sells both whole chicken and organic chicken. A kilogram of inorganic chicken costs AU$ 12.38 while the same amount of whole chicken costs AU$ 32.13 which is more than twice the price of inorganic chicken. Similarly, organic soaps cost on average AU$ 4.00 while inorganic soaps by multinational companies like Unilever cost around AU$ 3.80. This shows that the supermarket chain has products to attract both middle class customers and upper class customers. The branded but comparative cheap products attract middle class consumer base. Similarly, the organic products are expensive and enable the supermarket chain attract upper class consumer base which seeks organic products and financially capable of affording them. The supermarket chain in order to create value for its middle class offer product bundles. This bundling strategy enables the supermarket sell more products to the middle class customers, thus gaining their loyalty. This combination of customer centric product and pricing mix enables Woolworths earn immense revenue.
The next innovative strategy of the Woolworths lies in its promotion and place strategy. The Australian retail chain has strengthened its online presence by enabling customers to view its entire product line. It uses augmented reality trend of innovation to advertise its products online. The technology uses computer generated image which make the products and their details more clearly to the customers. This clarity of product impression of Woolworths created by augmented reality trend of innovation results in stronger product image in the minds of the consumers. The customers are thus encouraged more to order for the products marketed on the official website of the Australian retail chain.
Selected innovative trend of Woolworths
Woolworths has banned offering plastic bags to customers at all its outlets to comply with the Australian environmental laws. This strategy of the retail chain reflects its environmental consciousness and compliance with the Australian laws.
Prajogo (2016) defines the organizational environment as the situation or set up within which business organizations operate. The business environmental factors can be classified into external and internal factors. The external or macroeconomic factors are factors over which business organizations have no control. These factors have strong impacts on the working of the business organizations and latter have to form strategies to adapt to these factors. These factors are political, economic, social, technological, legal and environmental, summarized by the term, PESTLE (Smith, 2016).
The internal organizational factors can be defined as those factors which exist within organizations and are under their control. The internal factors include organizational culture, values, resources available within the organizations and their financial resources.
Krasyuk, Kirillova and Kozlova (2017) defines innovative trend as the different patterns in which companies bring about changes in their products. Gunasekaran, Subramanian and Rahman (2015) mention in this respect that innovation in companies comes under influence of external economic factors like development of technology. The trends of innovation are not restricted to any particular area. In fact, innovation trends encompass all areas operations like finance, marketing, human resource management and even waste management.
Chen and Hou (2016), define innovation capabilities as the power of business organisations to bring about innovations within their operations. The capabilities of organisations to bring about innovations depend on several external and internal factors. For example, external factors like strong economic conditions boosts innovations within companies. Similarly, internal factors like availability of highly efficient staff members boosts innovation.
The Harvard Business Review defines innovation value creation as a sequence of innovation which has three stages. They are idea generation, development of ideas and diffusing them (hbr.org, 2018). The review further mentions that managers similarly engage in six critical critical tasks. They are internal sourcing, cross functional sourcing, external sourcing, selection of ideas sourced, developing of these ideas and storing them for use throughout the organization.
Innovation capture refers to the process of capturing or retention of some of the profit a business organization gains from such innovation. For example, Woolworths introduces an organic product. The supermarket does not only create value for customers but also strengthens its market image or goodwill which appears as an asset in the balance sheet. Thus, it can be inferred value capture refers to the business growth which organization gain from their own innovations.
Figure 1.Value capture process
(Source: webarchive.nationalarchives.gov.uk, 2018)
The aforementioned definitions are related very closely and influence each other. Prajogo (2016) mentions that macroeconomic factors have direct influence on innovations that take place with a particular organization or an industries. Innovation value chain, by definition refers to generation, development and diffusion of ideas (hbr.org, 2018). Woolworths on its official website which uses augmented reality trend in its official websites. The supermarket encourages the customers to express their ideas and feedbacks regarding its products and services. The sales staff members also interact with the customers on regular basis (interaction component of the IDIC model). These feedbacks and ideas leads to generation of ideas which the managers work on or develop to form strategies about future product marketing of the Australian retail giant. The managers then go on diffuse the ideas with the strategies of the organization. This is in turn dependent on the skills of human resources, financial resources and organizational culture which are internal organizational factors. Efficient use of the innovation value creation leads to alignment of the product strategies of the super market to the needs of the customers. This enables the retail chain to offer their appropriate products to ensure high revenue generation and strengthening of its goodwill. This refers to outcomes of the business operation refers to the value capturing of the super market chain by creating value for customers by offering innovation products. This shows that the three components namely, business environment, value creation, value capture and innovation capabilities are interdependent. The power of the retail chain of creating value by offering of innovative products shows its innovation capabilities.
Strategy 1: Product and pricing
Creation of innovative strategy enforces strategic alignment within business organizations which are of great importance. The supermarket chain, Woolworths gains information about the changing preferences of customers on its official websites. The apex management body of the forms strategies to align its entire operations in the line of the customer expectations. This helps in offering of customer centric products, thus generating higher profits. This encourages customers to give more feedback to the supermarket which encourages the latter to bring about innovation in its entire operations.
The augmented reality innovation trend which Woolworths have several positive impacts on the organization and its business generation. The official website of the supermarket chain gives complete information about the product umbrella along with prices and attributes. The pictures of the products appear as they are and create trust among the consumers regarding the supermarket. This trust encourages consumers to visit the outlets of Woolworths and purchase the products. The official website of the supermarket chain facilitates online ordering of products as well (Brownlow et al., 2015). Thus, it is evident from this discussion that augmented reality strategy of innovation enables the supermarket chain attract immense number of customers both at its outlets and online. This leads to generation of high revenue for Woolworths by serving immense consumer base both at the stores and online. The second impact of the augmented reality innovation is that it attracts immense viewership to the official website of the supermarket chain. This paves ways for the supermarket to earn new consumers which generates revenue (Lange & Velamuri, 2014). It has also helped the supermarket chain to retain its top position in the Australian retail industry in spite of competition from Coles and foreign retail brands like Tesco based in the UK.
The management of Woolworths must apply SWOT as the strategic tool. An application of the SWOT to study the business generation of Woolworths would bring to light several impacts, opportunities and threats it faces.
A SWOT analysis of the Woolworths supermarket chain reveals that the augmented reality innovation have several positive impacts as discussed above. The first impact is creating a strong image among consumers by advertising realistic pictures of products along with their attributes and prices (Blázquez, 2014). The second impact is actually the outcome of the first impact. The supermarket chain is able to earn immense profit by attracting this consumer base. The third impact of the innovation strategy is that it renders the supermarket chain the leading position in the Australian retail industry (Lissitsa & Kol, 2016).
The augmented reality innovation trend also has several negative impacts on Woolworths as well. The first negative impact is that implementation and up gradation of the official website adds to technological expenses of the retail chain. The second negative impact of the trend is that the firm has to depend on third party firms like payment gateway and innovation firms to use the strategy of augmented reality (Weiss & Miller, 2015). This exposes it to chances of data thefts which devastates its goodwill and financial base.
Strategy 2: Promotion and place strategy
A SWOT analysis of Woolworths reveals that the firm can use this strategy of augmented reality innovation as an opportunity. It can advertise this innovation strategy in its official website to strengthen its image as the master of innovation in the retail sector (Ramanathan, Subramanian & Vijaygopal, 2017). This would in turn enable it to strengthen its goodwill and generate more business.
The augmented reality innovation makes Woolworths dependent on third part innovation firms. This accelerates the chances of data theft which is a great threat for the retail chain (Weiss & Miller, 2015).
Part 5.2. Recommendations on the innovation strategy:
It can be recommended that Woolworths should carry out innovation on regular basis. the Australian retail chain can enter into open innovation to outside firms to strengthen its innovative capability.
It can be recommended that the Woolworths should align its innovation with its customers’ needs. First, supermarket chain should involve customers in its innovation strategy by gaining their feedback regarding its website. Then it can bring about up gradations in its website aligned with the customer expectations.
It can also be recommended that Woolworths should develop additional innovation capabilities. The supermarket chain can bring innovation areas like pricing and packaging. It can make products available in different packages of varying sizes at appropriate prices. The products, especially the perishable products should be packaged in waterproof containers. This would enable the customers purchase them without ordering plastic bags. Thus, this innovation would be aligned with the CSR of the supermarket chain.
It can be recommended that the supermarket chain should apply new innovation initiatives in terms of CSR. The CSR can include training of local farmers to grow organic food. This would lead to create high quality products for consumers on hand and lead to income generation for local farmers on the other. These innovations would create value for both the supermarket chain and its stakeholders. The supermarket chain would as a result capture value both revenue wise and in terms of goodwill owing its innovation strategies.
References:
Blázquez, M. (2014). Fashion shopping in multichannel retail: The role of technology in enhancing the customer experience. International Journal of Electronic Commerce, 18(4), 97-116.
Brownlow, J., Zaki, M., Neely, A., & Urmetzer, F. (2015). Data and Analytics-Data-Driven Business Models: A Blueprint for Innovation. Cambridge Service Alliance.
Capturing Innovation. (2018). Retrieved from https://webarchive.nationalarchives.gov.uk/20100407164828/https://www.ogc.gov.uk/documents/capturing_innovation.pdf
Chen, A. S. Y., & Hou, Y. H. (2016). The effects of ethical leadership, voice behavior and climates for innovation on creativity: A moderated mediation examination. The Leadership Quarterly, 27(1), 1-13.
Gunasekaran, A., Subramanian, N., & Rahman, S. (2015). Green supply chain collaboration and incentives: Current trends and future directions.
Gunasekaran, A., Subramanian, N., & Rahman, S. (2015). Supply chain resilience: role of complexities and strategies.
Krasyuk, I. A., Kirillova, T. V., & Kozlova, N. A. (2017). Network technologies as innovative solution in commodity circulation. In SHS Web of Conferences (Vol. 35, p. 01055). EDP Sciences.
Lange, V. G., & Velamuri, V. K. (2014). Business model innovation in the retail industry: Growth by serving the silver generation. International Journal of Entrepreneurship and Innovation Management, 18(4), 310-329.
Lissitsa, S., & Kol, O. (2016). Generation X vs. Generation Y–A decade of online shopping. Journal of Retailing and Consumer Services, 31, 304-312.
Prajogo, D. I. (2016). The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics, 171, 241-249.
Ramanathan, U., Subramanian, N., Yu, W., & Vijaygopal, R. (2017). Impact of customer loyalty and service operations on customer behaviour and firm performance: empirical evidence from UK retail sector. Production Planning & Control, 28(6-8), 478-488.
The Innovation Value Chain. (2018). Retrieved from https://hbr.org/2007/06/the-innovation-value-chain
Weiss, N. E., & Miller, R. S. (2015, February). The target and other financial data breaches: Frequently asked questions. In Congressional Research Service, Prepared for Members and Committees of Congress February (Vol. 4, p. 2015).
woolworths.com.au. (2018). Retrieved from https://www.woolworths.com.au/shop/browse/health-beauty/shower-bath-soap/body-wash?pageNumber=2
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