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Chapter 1

Introduction

1.0 Background of the research

With the advent of globalisation, the level of competition in the market has increased significantly irrespective of the types of industries. Hence, in order to sustain in the highly competitive market environment, the companies have started to formulate effective business strategies. The main purpose of these strategies is to create competitive advantages over the rivals (Barney, 2009). In this circumstance, most of the strategies have focused on modifying 4Ps of the firms such as product, place, price and promotion.

Pricing strategy of the firms depends on several factors such as demand and supply of the market, level of competition of the market, regulatory framework of the market, strategies adapted by the rival firms etc. (Barney and Hesterley, 2006). However, in most of the cases, it has been observed that the managers of the large firms have started to formulate strategies that can nullify the level of competition in the market. Liberalisation and privatisation policies have also provided the opportunities to these companies to operate independently and decide their own pricing policy (Campbell-Hunt, 2009). Hence, large companies have started to decide their own pricing strategy by taking the advantage of their large scale production. In majority of the cases, the market leaders in a particular industry have started to decide their own pricing. The concept of regulating the prices by the market leaders are known as price leadership (Buzzell and Wiersema, 2011).  However, price leadership policy adapted by the firms has lowered the level of competition in the particular market. As a result of that this approach has been highly criticised by the rival firms in the market. Moreover, in a highly competitive market, implementation of price leadership strategy has imposed significant challenges for the firms. This research intends to highlight on the major challenges faced by the firms during the implementation process of price leadership strategy in an immensely competitive market environment.

 

1.1 Organisational background

Poundland is a popular variety store chain in UK and sells most of the items for £1 to its consumers. The company has been established on 1990 and its’ headquarter is located in West Midlands (Poundland, 2015a). The company offers a diversified range of products that include home and kitchenware, healthcare items, gift items and others. Most of the products offered by the company are clearance products. Like most of its competitors, Poundland also operates through a rotating product line (Poundland, 2015a). The company claims to introduce the concept of rotating product line in Europe. Most significantly, Poundland is considered as the largest single price retailer discount retailer of Europe.

According to the 2015 figure, Poundland has reported its revenue as £997.8 million and net profit of £13.9 million (Poundland, 2015a). Croydon store of the company has recorded as the busiest single-priced discount store of the world. It caters the demand of almost 2.75 million of customers per week. In spite of the economic turmoil, the company has maintained a steady growth in the sales figure in UK. In 2015, the company has acquired 99p Stores (Poundland, 2015a). However, the acquisition has resulted in a struggling performance for the company has drop in the share price. In the context of stiff competition UK retail segment, Poundland is required to derive strategies that can offer the company competitive advantages over the rivals. Therefore, it can be inferred that for maintaining sustainability with a significant amount of market share, pricing plays an important role for Poundland, UK.

 

1.2 Significance of the problem

In order to maintain the large market share and remain top position in the market, the companies have intended to reduce the level of competition in the market. In some of the cases, the firms have intended to nullify the effect of competition with effective marketing strategies. As discussed in the previous section that, by utilising the advantages of large scales production, the market leaders have implemented price leadership approach.

However, it has been found that implementing price leadership approach has imposed several problems for the market leaders. Firstly, there has been a huge protest from the rival companies of the market. Secondly, the firms have also faced objections from the government. The government has taken the necessary steps to maintain a proper level of competition in the market. In the context of increased level of competition of market, the study is relevant enough. It has allowed the researchers to highlight on the major challenges of implementing price leadership strategy. In addition, the researcher has also analysed the effects of price leadership approach on a particular industry. Moreover, the companies like Poundland can also adapt the alternative strategies recommended in this research to attain competitive advantage over the rivals.

 

1.3 Statement of the purpose

This research has covered the major aspects of price leadership approach in the context of highly competitive business environment. In addition, the research has also highlighted on the difficulties and consequences faced by the leading firms of a particular industry to implement price leadership approach.

 

1.4 Statement of the problem

Implementation of price leadership approach has certainly provided the power to the firms to regulate the price according to their convenience. Moreover, it has compelled the other firms to either adapt the same pricing or to exit from the market. However, incorporation of such strategy may create challenges to the market leaders as it can raise protests from the rival firms and government. Hence, the problem of the research is to identify the challenges involved in price leadership approach in a highly competitive market environment.

 

1.5 Research aims and objectives

The aim of the research is to identify the challenges involved in implementing price leadership approach in a competitive market environment. The study has primarily been focused on Poundland, UK.

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