The Media-Saturn Holding As an Illustrative Example of the Adaptive Cycle of Change
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The Media-Saturn Holding as an illustrative example of the Adaptive Cycle of Change Mini Case Study, written for UvA’s M.Sc. course (Virtual) Organizations in a Dynamic Context Simon Verhoek M.Sc. student Information Studies – Business Information Systems Student no.: 10556370 Introduction The Media-Saturn Holding is one of the leaders in consumer electronics retailing in Eastern and Western Europe. With the first Media Markt store opened in Germany in 1979, the company quickly grew to the over 700 stores in 14 countries on this moment. Saturn, a store with the same formula and now also part of the company, has around 230 stores throughout Europe. The web-based company Redcoon also makes part of the Media-Saturn Holding, but this case study will merely focus on the Media Markt and Saturn. The formula of the Media-Saturn Holding is one of having brick-and-mortar stores on prime locations in larger cities, showcasing and selling a large amount of products in the consumer electronics branche (Media Markt has an assortment of around 45000 products (Media Markt homepage)). These products are shelved physically so consumers can hold them and try them out. Next to being located on prime locations and offering a large assortment, the company also handles a price-leader formula: having the “lowest price guarantee” is one of their main policies (Media Markt homepage). In the consumer electronics market, price competition is fierce and the margins earned on products are, on average, low. With its competition on price level, the Media-Saturn Holding thus minimizes its earnings of selling products. Paired with the maintaining of large buildings on expensive locations, lots of personnel and necessary stock, Media-Saturn Holding’s profit margins are minimal. An economic crisis spread across the world in 2007 and consumer purchases dropped. At the same time, web shops gained more and more traction in the consumer electronics market. Continuing common turned out to not earn itself back anymore. The adaptive cycle(s) This evoked an internal crisis at Media-Saturn Holding: strategy changes had to be performed in order to maintain the company’s continuity. The profitability of selling consumer electronics evaporated, and new ways of increasing revenue had to be found. Media-Saturn Holding responded with two new tactics: • Starting a web shop • Embracing the store-within-a-store concept In the sections below, the adaptive cycles these two new tactics (labeled New Combinations in the Adaptive Cycle Model) evoked will be described. Starting a webshop The brick-and-mortar stores of Media-Saturn Holding started losing more and more market share to the raising number of web shops. As such businesses have far less overhead costs, sharper prices can be enhanced on the products. To stay able to compete with these web shops, one of the New Combinations that Media-Saturn Holding came up with, was competing directly by penetrating the same market: both for Media Markt and Saturn, web shops were set up in which products could be bought. In the Entrepreneurship phase, features as home delivery were added to increase the competitiveness of the web shops. The answer to whether the Equilibrium phase has been reached, is not one-sided. One could say that it has, as the web shops of Media Markt and Saturn can now be seen as equal feature-wise to those of its competitors. There are however some side notes. Of the about 45000 different products usually carried by a local Media Markt store, only about 2500 are said to be available on the web shop (Zenner, 2013). Its product assortment is thus highly limited compared to a local brick-and-mortar establishment. Another problem is that all brick-and-mortar establishments are franchises: they all have their own CEO and decide individually on their assortment and product offers. The web shop thus misses out on both assortment and the most product offers, reducing its appeal to and raising confusion with customers. From this point of view, Media Saturn Holding is still lagging behind its competitors and for the web shop tactic the Equilibrium phase has thus not yet been reached. Embracing the store-within-a-store concept As the profit margins on products dropped to a minimum (or even below cost price, something that happens occasionally with temporary special product offerings), money needs to be drawn from elsewhere in order to ensure the company’s continuity. Enter the store-within-a-store concept. Already prevalent in many other markets like supermarkets, cosmetics and high-end fashion, a store-within-a-store is a small part of a store rented to a particular brand manufacturer, over which this brand gets a high level of autonomy (Jerath & Zhang, 2010). The manufacturer can use this space to shelf out and sell its line of products, and stock and promote them all on their own without setting up a separate brick-and-mortar store. For a retailer, such ‘outsourcing’ of the selling of products has three compelling advantages: • Profit certainty is increased. In a store-within-a-store, the brand manufacturer is responsible for merchandising, stocking and selling its own products. This means that the retailer (the store owner) does not need to worry about gaining profit on product sales anymore. The uncertain profit of selling products with a price margin is changed into a safe and steady income from rent collection. • The retailer does not become the victim of interbrand competition. When brand manufacturers compete against each other on a price level, profit margins along the supply chain are minimized. This increases the difficulty for retailers to gain a profit on their product sales. By enhancing the store-within-a-store concept, the price competition is reverted to the manufacturers themselves, as they are now self-responsible for the sale of their products. In fact, it passes the benefit of price competition towards the retailer: product prices can decrease and generate extra store traffic, without losing profit margin. • Overhead costs decrease. As the stocking and sale processes are outsourced, the retailer needs fewer personnel and has fewer products to purchase, stock and distribute. Jerath and Zhang (2010) argue that because of these and other reasons, enhancing the store-within-a-store concept “leads to lower retail prices, higher sales, and higher service provision by each manufacturer’s store within a store and thus higher profits for the retailer.” This concept thus enables Media-Saturn Holding to combine availability with price competitiveness. The store-within-a-store solution has brought the Media-Saturn Holding into the Equilibrium phase: the profits of stores-within-a-store successfully fill up the gap in revenue caused by the economic crisis and competing web shops. References Jerath, K., & Zhang, Z. J. (2010). Store Within a Store. Journal of Marketing Research (XLVII), 1547-7193. Media Markt homepage. (sd). Opgeroepen op November 20, 2013, van Media Markt: http://www.mediamarkt.nl Zenner, R. (2013, January 17). MediaMarkt - A Webshop Alibi. Opgeroepen op November 20, 2013, van Ecompunk - Joing the Commerce Revolution: http://ecompunk.com/2012/01/17/mediamarkt-a-webshop-alibi/ .