Keeping the
product portfolio stable yet innovative ( stores stock more than 40,000
products)
10.1
Target Markets: size, growth, and profit potential
Home
Depot is a market leader in its segment and it has learned how to expand its
existing market (the company plans to open 2 to 3 stores a week this year),
defend its current territory (850 stores nationwide), and increase its market
share profitability. In its past Home Depot has shown a remarkable ability to
protect its market share against their competitors such as: Sears Hardware,
Lowe’s or Menard’s.
Home
Depot’s position on the current market is strong; the company can take
independent action without endangering its long-term position regardless of
competitors’ actions. Home Depot has proven that it can introduce new product
brands (its exclusive lines like Behr paints and stains) and it can afford the
risk if it is not very successful. Home Depot is even able to afford the
financial risk of launching new stores geared at a new market (Villager’s
Hardware or Expo).
Home Depot most significantly used to target professional contractors and it positioned itself as a warehouse supplier catering to their needs. In addition to that for a second year now Home Depot has been penetrating a small do-it-yourself home improves market. In this other disguise Home Depot positions itself as a home center where not professional constructors can do most common house projects. The company customizes its interior (smaller stores) and services (design consultation) in Villager’s and Expo. Home Depot expands its market share by educating small house owners on how to do minor construction or renovation projects.
With
a growing American economy and strong real estate market Home Depot confidently
expands its store network to gain new customers while retaining older ones.
Home
Depot’s growth and profit strategy is very stable while continuously coming
out with new ideas.
To
maintain a strong position on the current market Home Depot focuses on:
·
Keeping the
product portfolio stable yet innovative ( stores stock more than 40,000
products)
·
Reaching more
consumers through new concepts ( Villager’s and Expo)
·
Growing
opportunities for profitability (by expanding its market share)
·
Expanding
globally ( in South America and Canada)
We
believe that Home Depot best growth opportunities should be strategic alliances
with suppliers and other home centers. The company should find partners who will
optimize its overall supply chain.
For example:
·
Home Depot
should collaborate more closely with a few suppliers in order to gain more
control over their activities
·
Home Depot
should partner with other home centers ( possibly
Lowe’s)
·
Home Depot
should work more closely with its international branches to share marketing
efforts
·
Homes Depot
should keep up its expansions plans in the country as well as abroad
Home
Depot has profit potential as long as it competes hard to maintain its market
share and keep its customers satisfied and interested.
10.2
Buyer Behavior & Product / Service Tactics
There
are certain personal characteristics that influence consumers’ decision to
shop at Home Depot:
·
Lifestyle
·
Economic
orientation
·
Occupation
·
Age
·
Personality
Home
Depot aims to provide the type of store that consumers can go to for DIY home
improvements. Home Depot’s goal is to please the consumers.
Consumers know that they can expect low prices.
Home Depot also aims to provide customer service in the stores.
These are aspects that help Home Depot stay ahead of its competitors.
Home Depot also provides a variety of products, ranging from nails to
sheet rock to gardening tools. This
allows all types of buyers to come to Home Depot.
As
part of Home Depot’s service, it also provides truck rentals for those who
need a larger vehicle to transport the products that they bought.
This is convenient for those who do not have such big vehicles.
10.3
Advertising Tactics
·
Message
Home
Depot stresses low prices, a variety of products and customer service.
·
Media
Home
Depot must stress the message to present and potential customers.
It must reinforce to the people that it provides low prices and a variety
of products, as well as customer service.
To
advertise its message Home Depot uses the following media channels:
o
Direct
mail
o
Radio
o
NASCAR sponsorship
o
Home improvement TV shows
Define Brand Equity
·
Brand Loyalty
Home
Depot is known for low prices, a variety of products and customer service.
People expect to find what they need to fix something in their homes or
to make home improvements. Although
they provide customer service it could be strengthened.
Strategy
– Improve customer service by improving personnel.
If Home Depot improves its customer service, it would already help to
increase its popularity within the general public.
People want to know that they will get help, if they need it.
·
Awareness
Home
Depot should continue to send flyers to the homes in the areas where the stores
are located. This reminds people that Home Depot provides a variety of
products at low prices. The flyers
are also useful to remind customers of products that they need on a seasonal
basis.
·
Associations
Home
Depot’s logo is the orange box with its name in it.
No other Home improvement company has a logo like it.
People see the logo every often now, because it has stores all over the
country. People associate the
orange apron with friendliness and service.
·
Perceived
Quality
The
simple logo along with its message, makes it very easy for the people to
remember that Home Depot has good quality products at low prices.
·
Other Proprietary Brand Assets
o
The
personnel in the stores wear orange aprons, giving the store a sense of
friendliness and approachability.
o
The huge
warehouses of Home Depot let people know that they have a large selection of
products.
o
Home Depot
also offers “how-to” classes on things like tiling, wood flooring, etc.
This provides customers with knowledge on how to do things.
10.4
Sales Promotion / Publicity Tactics
'Where
low prices are just the beginning'. Home Depot's value-focused advertising has
worked for the retailer. The low-price image continues to win consumers, making
Home Depot a household name in every sense. Home Depot's ad spending far exceeds
that of any other retailer in the home improvement industry. Trade magazine
Advertising Age includes the chain in its ranking of the top 'megabrands' just
ahead of Kmart and right behind Mazda. According to Media Reporting, Home Depot
spends on advertising about $90million.
Types
of sales promotion:
·
Mail brochures
sent to valued customers
·
Web site banners
posted on home improvement sites
·
Radio commercials with a slogan: We
have ‘Everything you need to create the look you want’
·
TV commercials
Types of Publicity Campaigns:
The company has a philanthropic budget of more than $15 million for 1999 which is directed back to the communities the Home Depot serves. The major charitable focuses are affordable housing and at risk youth. The company works on those issues through various founded organizations. The housing concentration is supported by more than 50 locally active organizations e.g. Accessible Housing Service, HomeCorp, or Mid City Redevelopment Alliance. The youth at risk issue is tackled by another as numerous set of organizations e.g. DARE, Citizens Committee for New York City, Inc., or Crippled Children Society.
The
Home Depot is a corporate sponsor of a number of sports programs, events and
teams:
·
As an Official
Sponsor of the U.S., Puerto Rican, and Canadian Olympic Teams is ‘proud to
support our athletes as they reach for the gold’
·
The Home Depot
is getting behind the wheel in car races with its race driver Tony Steward
in NASCAR
·
Each spring, the Home Depot sponsors a golf tournament in the Home Depot
Invitational in Charlotte, NC.
10.5
Sales Force Tactics
Basic
Elements: Objectives, Strategies, Size, Compensation
Ø
Objectives and Strategies
Being
a large outlet with a wide selection of products at low prices, Home Depot does
not need to rely on various selling techniques in order to improve sales. Home
Depot’s strength is that it has the lowest prices and widest selection.
Customers come to Home Depot knowing and expecting this. The job of the sales
force in Home Depot, it therefore not to ‘hard sell’ products, but to assist
customers in finding the right products. Thus, sales people in Home Depot act
not as traditional salesmen, but instead as service providers. They help
customers find what they are looking for, and in the process, make the DIY
experience a pleasant one. All ‘selling’ techniques in this case are
‘customer service’ techniques.
Home
Depot’s sales strategy must then concentrate on how to improve customer
service.
Ø
Size
We
recommend the Home Depot increase the number of sales personnel per outlet. Home
Depots large outlet size makes store navigation and product selection difficult
for many customers. Increasing the number of sales people, and placing them
strategically throughout the store, will reduce the number of customers who end
up feeling ‘lost’. By having balanced storewide sales personnel coverage,
customers will be able to easily obtain assistance before the feeling of
frustration sets in, thus improving the overall shopping experience.
Ø
Compensation
Currently,
Home Depot pays its sales force personnel through salaries and per-hour pay
schemes. We believe that providing monetary incentive for better service will
improve overall customer service. Home Depot does currently use a merit system
that allows customers to mail in recommendations for employees who provide
outstanding service. For every five merits an employee receives, a small reward
is given. We believe that this type of program is a step in the right direction.
Programs that would include larger, monetary rewards for good service would help
in the motivation of employees to provide better service.
Management:
Recruiting, Training, Evaluating, and Motivating
Ø
Recruiting
We recommend that Home Depot institute advanced personality tests such as the Myers-Briggs Type Indicator in order to evaluate potential sales personnel suitability for employment. There are certain types personality traits better suited for sales people. Through a more selective recruiting process, the right personality types can be placed into sales positions. This would improve the overall quality of customer service, leading to better shopping experiences.
Training
Home
Depot uses a two-week training period for new employees. The new trainees we
spoke with at the Long Island City Home Depot confirmed the strong emphasis on
customer service. We believe Home Depots employees are knowledgeable and do
provide good customer service when they are present. We feel the main problem
with Home Depot’s service delivery processes is with the number and
availability of in-store personnel.
Ø
Evaluating and Motivating
We
recommend that evaluation and motivation would be improved with the introduction
of larger reward schemes for employees who provide outstanding customer service.
Currently Home Depot uses a merit system in which customers can mail in a form
that attests to good service delivered by an employee. For every five merits an
employee collects he or she receives a minor reward. We believe that the
institution of a comprehensive merit-like scheme, which would include larger
rewards as well as evaluation and additional training, would help motivate
employees to provide better customer service.
10.6
Distribution Tactics
Home
Depot is the largest DIY Home Improvement retailer in the world.
It is a very solid company that has three marketing channels with which
it can reach its customers:
1.
Home Depot stores - "big box" stores
2
Village Hardware -
smaller neighborhood stores
3.
Expo - design centers
With
this many different types of outlets, Home Depot has no trouble reaching its
customers through distribution. The
flagship Home Depot stores have a wide range of products available and at the
best prices. But where is needs development is in its actual store to
customer relationship. Customers
value service above all else and this is where Home Depot needs to differentiate
itself from its competitors. The
factors of Service Delivery Processes and DIY Experience are closely related and
our recommendation to improve this area will place Home Depot ahead of the pack
in all areas. The main issues as
they relate to Distribution Tactics:
1.
Control of Value Chain - Home Depot does. They are increasing their market share and increasing control
over what they sell in the stores by buying up manufacturers and increasing the
sale of products that they actual own or have an ownership stake in.
2.
In Store Experience - Home Depot is losing step here.
A focus on customer relations improvement, and more importantly, in-store
design. The flagship "big
box" stores that are so prevalent in today's Home Improvement industry are
still viable. But in order to make
it easier on the customer, they must be designed not to carry as many products
as possible, but to make it easier for the customer to access as many products
as possible.
3.
E-commerce - Home Depot has been slow to introduce an e-commerce site,
but this probably will not hurt them. With
unlimited funds, they can enter the e-commerce department and immediately be an
industry leader in this field. They are going about it the best way. Taking a wait and see attitude, seeing what works and what
doesn't, and then entering the e business market with money and an unbeatable
brand name.
4.
In-store technological embracement - Any improvements in the convenience
of how customers receive products will help Home Depot, obviously.
Customers are looking for an overall experience to enhance their DIY
attitude. If an advancement such as aisle electronic cash registrars
for increased speed in buying becomes viable, the Home Depot shopper will be the
first to wish to experience the convenience.
Spending time at Home Depot is not about the speed of the transaction, it
is about the experience of the transaction.
Distribution tactics listed above should be focused on and maintained to keep Home Depot at the forefront of the Home Improvement industry. Home Depot is not a product that needs to be distributed, but is an Experience that needs to be conveyed.
10.6
Wholesale and Retailing Tactics
The
wholesale and retailing tactics of Home Depot are alternately their strongest
and their weakest links. These two
marketing channels need to be examined very carefully in order for Home Depot to
maintain its market lead.
Wholesale:
Home
Depot is offering the lowest price, and can because they have put themselves in
the position of controlling their Value Chain.
With different outlets and the purchasing of suppliers Home Depot has the
ability to sell quality products at the lowest possible prices.
Retail:
1.
In-store staff - Using the core resource of personnel effectively.
Training, and motivating in-store staff to give the customer the best
experience he or she can possibly have. Home
Depot is already offering low prices, but they are not offering customer service
in anyway that differentiates them from the competition
2.
Store Design - If Home Depot would simply make the "big box"
stores less overwhelming, they would improve their standing among customer.
Individual store leadership needs to be taken into account here.
Each store must be able to offer its customers the best experience in
Home Improvement that can be given.
3.
Internet - As addressed before, Home Depot has been slow to enter the
ecommerce market. This will not
hurt them because they have the money and brand name to become a leading player
as soon as they do enter the field. Using
models such as barnsandnobles.com, they should satisfy any retail issues that
will arise with customer Internet demands.
4.
Technological Advancement - whatever makes the retail experience easier
is something that needs to be embraced by Home Depot. The speed of the transaction is not as important as the
"talked about" aspect of the innovation. The retailing experience for Home Depot customers in more
than just getting in and getting out. It’s
the whole DIY experience of joint interests.
The
retail experience of Home Depot is an area that the company has no reason not to
address. Low prices are not enough to secure market leadership in the
Home Improvement Industry. The
whole experience of in-store activity is what can give the edge.
The typical Home Depot customer may not be DIY in terms of shopping for
what they want.
10.8
Pricing
Pricing
is a key component of The Home Depot’s market positioning strategy. In
determining the prices for its wide range of products in its stores, The Home
Depot takes into account the following factors:
§
The product and service offerings of its stores
§
The target market: home-owning do-it-yourselfers (DIYs)
§
The competition’s pricing strategy for its products and service offerings
In
coming up with its everyday low price strategy, The Home Depot has adopted a low
mark-up in a bid to gain higher sales volumes in its stores. The Home Depot has
the ability to sell products at low prices; because of the Company’s sheer
size, it has economies of scale in purchasing from suppliers and in distributing
products to its stores and customers as well as the capability to maintain low
overhead costs and controlled expenses. The Home Depot has also made enormous
investments in advertising and other promotional and marketing tools to ensure
that The Home Depot brand is associated with quality home improvement products
at low prices in the minds of consumers.
In
comparison to its competitors, The Home Depot ranks among the highest in terms
of offering the most value to consumers with its pricing strategy. Both Lowe’s
and Menard’s are trying to compete with The Home Depot on the low pricing
arena; only Lowe’s seems to be on a competitive edge with The Home Depot in
delivering value to customers. Sears, with its brand-name hardware products,
seems to be adopting a different pricing approach, offering higher prices for
its products with more personalized service in smaller stores.
It
will be interesting to observe The Home Depot’s pricing strategy for the
Internet, when the time comes for the Company to finally launch an e-commerce
platform on its website.
Will
the Company still have the ability to offer everyday low prices for its products
sold on the web? Or, will it be forced to adopt a different pricing approach for
the web, charge its customers a higher price for products sold on the web in
exchange for their shopping convenience and in order to cover additional costs
of distribution and delivery? A different pricing approach could adversely
affect The Home Depot’s leading edge on the Market Perceived Price (MPP)
score. If the Company decides that the products available on the web and the
same products available in the stores can be purchased at the same prices, would
The Home Depot then end up cannibalizing its own store sales?
In
conclusion, it might be recommendable that the Company continues with its
everyday low pricing strategy with its stores, thereby gaining more volume at a
reduced profit margin. A different
pricing strategy should be adopted for its e-commerce sales, even though there
might be risks in affecting The Home Depot’s perceived market value on price,
so that the end result will be higher profit per unit sale at reduced volume
sales. It is true that delivery and shipping charges could be passed on to the
consumer so a low-price strategy could still be adopted for The Home Depot’s
e-commerce sales. However, consumers who prefer to shop over the Internet could
also be willing to pay a higher price for products in exchange for the relative
ease and convenience of on-line shopping versus the hassle of having to
physically navigate a Home Depot warehouse store location to make purchases.
On
one hand, the ease and convenience of on-line shopping could be the
justification for higher pricing of products sold on-line. On the other hand,
the low prices could be the justification for consumers to make their purchases
at the “brick-and-mortar” Home Depot store locations.
Either
way, The Home Depot will still be able to deliver a price-for-perceived value
approach to its customers.
10.9
International Strategy
Define
International Market Opportunities
With
a formidable U.S. domestic presence, the Home Depot’s has already strengthened
its grip on the North American market with an expanding presence in Canada and
has already just begun its foray into overseas markets, which includes the
Caribbean (Puerto Rico) and Latin America (Argentina and Chile). With the
exception of Europe, The Home Depot still faces virtually no competition
overseas in warehouse-style home improvement retailing and should successfully
essentially capitalize its pioneer status in the U.S. to initially capture
substantial market share abroad.
The
Home Depot’s international expansion strategy should further capitalize on
market opportunities offered by other regions in the world. By far the region to
offer the most tremendous potential would be Latin America. Its relative
proximity to the U.S., where the Company already has solid relationships with
suppliers and manufacturers and an established distribution network, the
compatibility of the do-it-yourself (DIY) experience with the Latin American
lifestyle, and the rising affluence of certain emerging Latin American markets,
which would result in an increase in the home-owning population, makes
Latin America a very attractive region for The Home Depot’s international
expansion. The Home Depot has
already opened four store locations in Chile and in a recent partnership with
giant retailer Wal-Mart, has acquired three Sam’s Club locations in Argentina
and is scheduled to open four store locations in Argentina this year.
The Home Depot should also consider penetrating the following markets:
·
Brazil
·
Mexico
·
Venezuela
In
Europe, The Home Depot should consider possible expansion in the following
areas:
·
United Kingdom
(Great Britain, Ireland, Scotland)
·
France
·
Germany
·
Italy
·
Spain
·
Portugal
·
Belgium
·
Switzerland
·
Scandinavian
countries (e.g. Sweden, Finland, Denmark)
·
Eastern Europe
However,
although Europe might possess the right demographics for the entry of The Home
Depot, the region also poses certain risks and challenges for the Company. The
Company faces formidable competition in Europe: one, Home Base, which operates
mainly out of the United Kingdom and which already has a head start in
establishing relationships with European manufacturers and suppliers, and two,
the more successful French group Castorama, by far the leading home improvement
retailer in Europe. The Castorama
Group, operates four main product
offerings in the home improvement categories in eight European countries:
Castorama (the leading home improvement retail chain in France, claiming nearly
30% of all DIY superstore sales, with 117 stores and with outlets in Belgium,
Poland, Germany, Italy and Brazil), B&Q Supercenters and Warehouses (the
leading home improvement retail chain in the United Kingdom), Reno Depot (the
leading home improvement retailer in the French Canadian province of Quebec,
with nine stores) and Dubois Materiaux (France’s leading building materials
wholesaler, which also supplies all of the Castorama Group’s stores). The
Castorama Group is poised for aggressive expansion outside its home base, with
plans to grow international sales (outside France) from 19% in 1998 to over 50%
in 1999.
In
addition, government regulations in some of these European countries and the
relative weakness of the euro against the U.S. dollar could pose problems for
the entry of American retailers into their markets. Since some of these
countries have highly unionized workforces, labour and employment issues could
pose certain problems.
In
the Asia-Pacific region, The Home Depot should seriously consider entry into
Australia and New Zealand as these two markets already have developed,
relatively free-wheeling economies, the right demographics as well as the solid
infrastructure necessary with which to build a highly efficient distribution
network .
In
addition, emerging Asian markets such as China, India, Malaysia, the Philippines
and Thailand would also offer attractive market potential. However, The Home
Depot would also face similar risks and challenges in Asia that it would face in
Europe. In addition, in certain countries in Asia, The Home Depot would have to
contend with volatile currencies as well as frequently unstable political
climates.
Define
customization & standardization requirements for the above marketing tactics
Attempting
to deliver customer value on pricing in international markets will prove to be a
very tricky process for The Home Depot. Extensive research has to be conducted
beforehand to determine the bargain price levels of hardware and home
improvement items in a particular country. Tremendous investment has to be made
in the areas of developing relationships with local suppliers and manufacturers
and in building an efficient local distribution and delivery network.
In
attempting to deliver customer value on service, extensive investments in
training of local store personnel would be necessary.
In
almost all countries, local-language versions of packaging of products as well
as of all advertising and promotional materials would probably be necessary.
Certainly, Spanish and Portuguese versions would be necessary in Latin America.
In Europe, French, German, Spanish and Italian would be initially necessary with
other European countries’ local-language versions to follow. In Asia,
local-language versions would be necessary in China, Thailand and Malaysia.
The Home Depot would need to exercise care that the brand value it has carefully built up and nurtured for decades in the U.S. is not diluted; at the same time, expansion in overseas markets means that the Company also needs to take into consideration the unique needs and conditions of the local market.