Pursuing a growth strategy Introduction Dixons: the home of new technology – a Electro World: a new investment business 1 High Street retailer of consumer electronics, operating in Hungary and the Czech Republic. Growth is an important business aim. Growth enables a business to selling the largest range of products including maintain a sharp competitive edge compared with rivals, and to TV and personal computers. The Group also operates 14 stores in the Republic of Ireland, trading as benefit from other advantages such as lower costs and greater brand Dixons, Currys and PC World. In 2002/03, the Irish businesses Currys: the UK’s largest electrical retailer. awareness among consumers. This Case Study examines how the delivered sales of £61m. The product range includes fridges and other Dixons Group has maintained an ongoing growth strategy by domestic appliances. piloting new store formats and entering new markets. It looks at the Ansoff’s Product-Market Matrix development of a new large retail outlet format (Dixons xL) in the PC World: Britain’s largest specialist chain 2 UK, and at the launch of Electro World in Eastern Europe. of computer superstores offering more than In a frequently quoted article in the Harvard Business Review, titled 5,000 product lines. Corporate Strategy (1957) Igor Ansoff outlined a number of growth Dixons Group plc is Europe’s leading specialist electrical retailer strategies. This was based on detailed research examining typical business with 1440 stores in 12 European countries. The company employs PC World Business: a major player in the growth case examples. He set out the main options in the form of a matrix: 30,000 people, with a profit of £301 million from a turnover of direct provision of IT products and services almost £5.8 billion (year to 3/5/03). to the business user. Product Present New Market A key part of Dixons’ success is its emphasis on researching customer The Link: the specialist mobile phone and Present Market penetration Product e.g. Dixons xL development requirements, and meeting and exceeding customer expectations. This communications retailer. New Market development Diversification focus is illustrated by the Group’s promise: ‘We aim to provide e.g. Electro World unrivalled value to our customers by the range and quality of our Additionally the Group owns important servicing companies that support its key retail businesses: products, our competitive prices and our high standards of service.’ Market penetration means selling more of existing products to existing markets, in order to increase market share. The Group’s objective is ‘to create value for our shareholders, Mastercare: provides state of the art delivery and after-sales service for customers of career opportunities for our employees and the best possible value Product development means growing through existing customer Dixons, Currys, PC World and the Link. and service for our customers.’ segments by offering new products to them. PC ServiceCall: is one of the largest Provide “career opportunities” for employees Market development refers to selling existing products to new customer “Create value” for shareholders e.g. e.g. structured training and personal technical support businesses providing after £130 million of dividends in 2003. development programmes. segments. sales service and telephone helpline support. Diversification involves developing new products for new markets. Dixons objectives for key stakeholders The main international brands are: Brand Location Sales 2002/2003 Stores At Dixons, product development often results from working with “Best possible value and service” for customers manufacturers to bring customers new types of goods, like exclusive e.g. affordable, exciting new products and effective PC City Spain, France, Italy, Sweden £77m 18 after-sales support programmes. models, or services like specialist 'mini-stores' within the main outlet. UniEuro Italy £256m 94 The Dixons Group is made up of a portfolio of leading UK and In this case study we examine two recent growth strategies employed Elkjøp The Nordic countries £749m 160 international brands designed to give customers the highest level of by Dixons i.e. market penetration through the development of the product specification, choice and customer service in the targeted Electro World Hungary, Czech Republic £46m 6 Dixons xL concept, and market development through Electro World. market segment. In the UK, the main brands are: PC City: a specialist PC retailer, based on the PC World model, with operations in Spain, Retail brands Sales - 2002/2003 Number of outlets France and Italy and now in Sweden. Dixons £837m 329 UniEuro: Italy’s most profitable mixed Currys £1,677m 291 superstores, electrical retailer. 88 High Street PC World £1,275m 126 Elkjøp: The electrical retail market leader in PC World Business £191m Nationwide IT supplier Norway and the sole pan-Nordic player with 160 stores across Norway, Sweden, The Link £373m 292 Denmark, Finland and Iceland. EDITION visit www.tt100.biz for Downloads • Theory • Quizzes • Company Info • Current and Previous Case Studies 9 The importance of market research Dixons xL Conclusion Social 3 5 6 An essential part of market growth strategies is to make sure that you Since the first Dixons store was opened in 1937 the range of products Dixons has grown from strength to strength by careful analysis of its know what your customers want (the product), and then to provide Legal SLEPT Economic has grown enormously. However, the size of stores has not grown in the market environment to identify the best opportunities in terms of them with it – where they want it (place), at the right prices, supported factors same proportion, and customer choice in individual stores has been developing its markets e.g. Electro World in Hungary and the Czech by the right sorts of promotion and advertising. limited by the space available for display. Dixons therefore is now Republic, and increasing market penetration, through creating its Political Technological piloting a new format of store which offers a much wider range of Dixons xL proposition in the UK. The net effect is to create more Market research is the process of researching your customers and the products under one bigger roof. opportunities for its employees, better choice for customers, and better market. Market research enables a company to minimise its risks. In deciding whether to expand into Eastern Europe and which markets value for its shareholders. Entering a new market always involves risk because it means entering to enter, the analysis included: Dixons xL builds on the best in Dixons Group. It began by comparing the unknown. For Dixons this involved desk research into consumer the most successful product ranges in each chain with a traditional trends (e.g. examining existing surveys of consumer buying habits in Social factors included changing consumer patterns as those consumers Dixons range. Where research showed likely strong demand, new Eastern Europe, and figures relating to income and expenditure), as began to demand lifestyles associated with modern societies – e.g. product lines were added into the bigger xL space and existing ranges well as ‘on the ground’ primary research. This included, for example, access to consumer durables such as washing machines, CD players, expanded to offer customers greater value and choice in one location. discussions with local affiliates of the global manufacturers that Dixons TVs etc. already purchases from and meetings with other UK and international Bigger retailing spaces also enable significant store design changes to retailers to learn of their experiences. showcase the latest retailing concepts. xL stores feature large-scale Legal factors included comparing different legal structures between displays, increased interactivity and special promotional areas, adding countries and also the degree of risk provided by organised crime. Before going ahead with a new development Dixons cross-references excitement and interest to the shopping experience. the different types of research (both internal and external) to make sure Economic factors included the rising standards of living in these that all the results agree and it can be sure that it is making the right Strong relationships with existing suppliers keep xL stocked with the countries, coupled with the availability of workers to staff the new business decisions. latest ‘must-have’ technologies, but Dixons has also pioneered new stores, and prevailing wage rates. The widening of the European Union partnerships. Small specialist ‘stores-within-stores’ add variety and in 2004 means that the economies of these countries are more likely to increase the number and type of customers. A SLEPT analysis for Electro World be buoyant into the foreseeable future. 4 Communism in Eastern Europe collapsed at the end of the 1980s and Dixons research has shown that there are tremendous economies of Political factors include the welcoming of new businesses by since then a number of countries have moved rapidly towards scale to be gained from operating large high street outlets like xL. The Glossary governments to help reconstruct their economies on western lines. developing Western European style economic systems with free following illustration shows how the rent per square foot is slashed as markets. Hungary and the Czech Republic have been leaders in a result of trading on such a large scale. Compare the rent per square Brown goods: Electrical goods such as TVs, DVD players etc. Technological factors relate to the competitive advantage that Dixons is foot at 5,000 sq feet with 35,000 sq ft. economic reform and welcoming of business links with Western Economies of scale: The advantages of large scale production European companies. They join the expanded European Union in May able to gain over rivals in offering modern sophisticated consumer that enable a firm to produce larger outputs at lower unit costs – 2004. The two countries are considered politically stable and have a electricals and other products from its worldwide sourcing, which are e.g.