A case about a strategic dilemma
Following the topic of The Key Element of Any Strategy I like to present a case for discussing the basic conflict when we consider a significant change. Please, send me your answers and analysis.
GoodChoice is a chain of small supermarkets throughout the Large-City. It was initiated by Marcello when he inherited the GoodChoice bakery his father built from scratch. Today, ten years later, the overall worth of Goodchoice Chain, including the bakery, which sells its variety of breads through the supermarket chain, is dozen times larger than the business of Marcello’s father.
Should Marcello be proud of his achievements?
He certainly likes to continue to grow. The hard competition with the other three supermarket chains, all of which are larger than GoodChoice, forces relatively low overall profitability of just 1.4% of the sales. The battle with the competitors is on every promotion and on every supplier, causing Goodchoice to pay higher prices to suppliers, while charging the customers lower prices than the competitors.
The marketing message that GoodChoice tries hard to spread is that they choose the items sold in any branch very carefully and guaranty high quality. Every GoodChoice branch holds between 1,500 – 2,200 SKUs. The GoodChoice branches are all located within the city itself, and thus have very limited space and limited parking. A typical branch of the competitors, usually located at the outer parts of the city, where parking is not a problem, carries between 4,000 to 12,000 SKUs.
All three competitors have their own private-labels, covering wide-range of items, with average price of 15% less than the price of the leader brand. Marcello already started his negotiations with various suppliers to establish the GoodChoice private-label. However, he likes to do something quite different and charge HIGHER price, of about 4%, for the private-label!
Marcello also wants to emphasis the message that GoodChoice gives to its customers absolute guaranty on the quality of the private-label products. He thinks of letting customers return even open packages if they claim they don’t like it. This idea invokes many negative reactions from Marcello’s team as they are concerned that too many customers will cheat to get refunds.
What do you think? Should GoodChoice make the change with their new private-label, charge more for an exceptionally strong guaranty policy? Or, follow the norm in the specific business area?