BUSINESS ENVIRONMENT

Business Environment

PART A

a)

Tidl

Without Cards

With Cards

Ghetto

Without Cards

(0,0)

 

(0, 100)

 

 

 

With Cards

(100, 0)

 

(100, 100)

b)

Without Loyalty Cards

 

£

Ghetto

100

Tidl

100

Total Profit

200

From the above calculations, we can say that without loyalty cards, the profits of both the companies are 100 each. This shows that both companies are catering the market equally.

Loyalty Cards Introduced by One Competitor

 

£

Ghetto

120

Tidl

60

Total Profit

180

From the above calculations, we can say that if Ghetto introduces loyalty cards, the profit of Ghetto will reach to 120 while that of Tidl will decrease to 60 only. The total profit of both companies will also reduced to 180.

Loyalty Cards Introduced by Both

 

£

Ghetto

80

Tidl

80

Total Profit

160

If both the companies introduce loyalty cards, the profit of both will decrease to 80 each. This shows that the introduction of loyalty cards will result in profitability decline. So, we can say that both companies should not introduce loyalty cards.

c) Dominant Strategy

As per the above calculations, introduction of loyalty cards is not profitable to anyone. As we can see that the introduction of loyalty cards is making the payoffs decline to £160 as compared to £200 when there were no loyalty cards. So, we can say that Ghetto or Tidl should introduce loyalty cards only and only if they are sure that other competitor will not introduce it.

d) Introducing Loyalty Cards-Dilemma

Each and every competitor in the world of super markets strives to get their upper hand and get them selves renowned so that they are proved better than that off others .In such cases they release loyalty cards seeing that the competitor also launches same set of loyalty cards with a different name, shape and different schemes which inturn turns supermarkets to get into dilemma. In a nutshell it is a total loss for the firm as they spend billions of pounds which makes customers profitable. Customers are benefited from this dilemma

e)

If, after a period when both competitors have been operating loyalty card schemes, Ghetto suggests that they discontinue their schemes simultaneously, would it be doing anything illegal?

Yes it is illegal; Is illegal if they discontinue their schemes suddenly with out a notice because it causes the inconvenience to the customers. Ghetto suggests that they suspend their schemes at once.

PART B: INDUSTRY ANALYSIS USING PORTER 5 FORCES

Potential Competitors: Medium pressure

Grocers could potentially enter into the retail side.

Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors.

Wal-mart often has an absolute cost advantage over other competitors.

Rivalry Among Established Companies: Medium Pressure

Currently, there are three main incumbent companies that exist in the same market as Wal-Mart: Sears, K Mart, and Target. Target is the strongest of the three in relation to retail.

Target has experienced tremendous growth in their domestic markets and have defined their niche quite effectively.

Sears and K-Mart seem to be drifting and have not challenged K-Mart in sometime.

Mature industry life cycle.

The Bargaining Power of Buyers: Low pressure

The individual buyer has little to no pressure on Wal-Mart.

Consumer advocate groups have complained about Wal-Mart's pricing ...