Out of the five generic business strategies, Home Depot is currently employing a best cost provider strategy. By providing a best cost provider strategy, Home Depot does not only lower prices to attract more consumers, but Home Depot provides products that have the quality of their competitors. As far as value drivers are concerned, Home Depot raises its value with its excellent. A source from Fox Business has stated that Home Depot was able to increase its market share due in large part to better pricing as well as their great customer service. 1 When it comes to cost drivers, Home Depot has relationships with numerous suppliers.
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With over 10,000 suppliers, Home Depot is able to able to cut down on costs, control expenses and negotiate prices at will. 2 By focusing on cost leadership, Home Depot has taken over the market. A source from Marketwatch states how Profits have been rising, specifically 7. 1% in the United States this year due to more transactions not only inside the stores but online as well. 3 This business strategy did come with risks along with rewards. The positive sides of this business strategy were lowering costs compared to rivals within the industry with comparable product attributes and still being able to make a profit.
Lowering Costs helps Home Depot increase its Market Share. Rising home values do as well. As Rita Nazareth and Sarah Pringle, writers and editors of The Washington Post, say, “Home Depot added $3. 64 to $67. 56. Rising home values are encouraging consumers to spend more on remodeling while the repairs after Hurricane Sandy spurred demand in the U. S. Northeast. The average purchase at Home Depot, the largest U. S. home-improvement retailer, rose 5. 6 percent to $55. 46 while the number of customer transactions increased 8. 6 percent to 329. 1 million, helped by an extra week in the quarter. Rising home values are the one of the main reasons. This kept the customers happy, gave Home Depot a better reputation, and brought more business. The negative sides or risks to this strategy are that other firms maybe able to lower their costs as well. This is generally called a “Price War”. Price Wars do not have to be won, just not lost. As Mark Stiving, author and entrepreneur, Says, “You don’t have to win a price war; you have to survive it. To survive, simply get out of the way. This doesn’t mean quit the business or leave the market.
It means differentiate your products and segment your customers. ” For an oligopoly such as Home Depot and Lowe’s, they lower their prices enough to beat out any other firms, and at that point it’s about service and any other intangibles such as product differentiation. Lowe’s over the years has always been a service oriented firm, with customer satisfaction being on the top of their list. However, in the recent past, things have changed. Lowe’s now has copied its rivals strategy in terms of cost leadership and prefers to lower prices to meet customer demands.
According to a source from Forbes, Lowe’s recently decided to move away from promotions and towards “Everyday Low Prices” to establish itself similar to that of Home Depot, coming from a cost leadership approach. 6 By doing this, Lowe’s had kept itself competitive with Home Depot. Home Depot is focused on being a best cost provider, however, that does not mean they do not want to stow away from customer satisfaction. At the same time, Lowe’s, who is at top in terms of customer satisfaction, is trying switch over to a cost leadership approach.
