There are various frameworks proposed by scholars and consultants for analyzing strategic situations. Strategy in business is a catch term that to present various meanings. Executives of a business use terms like acquisition strategy, branding strategy, and services strategy to mean various aspects they are explaining at a given time. Generally strategy by the CEOs means an overreaching and integrated concept of how a business will achieve its goals. A unified strategy of a business should have various elements.
There are five main elements that a strategy should have. These are; 1.) Vehicles; meaning how the business will reach its final goal. 2.) The second is arena, which means the areas where the business will be active. 3.) The differentiators that determine how a business will win in the marketplace. 4.) Staging. This so the sequences and speed of moves. 5.) Economic logic meaning the way a business will attain its returns. The first section of this paper will evaluate these five elements of Home Depot strategy. The second part will be on Home Depot SWOT analysis and give recommendations on a strategy to enhance strengths and opportunities for Home Depot. The last part is on a plan for Home Deport to deal with its threats and weaknesses.
The elements of strategy
The strategy of Home Depot has various important elements. First are the Low prices. The company offers competitive and low price, which is a central feature in the concept of warehouse retailing. The company’s strategy is to be a low cost provider. Home Depot strategy has the arena through enhancing its main retail network via unique and innovative merchandise. Home Depot aims to change needs by focusing on home improvement market. The company taps into the market of residential builders through acquiring three top ten providers in 2002 through installed flooring (Annual Report, 2012). Through the "customer-back" initiative for decision making, Home Depot is dedicated to establishing a positive relationship with its customers. This is through the do-it-for-me (DIFM), the professional, do-it-yourselfers (DIY), to many existing and emerging segments of customers (Annual Report, 2012). Home Depot aims to offer the best products and services (Annual Report, 2012). These are the areas of the business strategy that Home Depot aims to be active.
Vehicles are the means that assist company how will we get there. Home Depot has a unique culture that is based on commitment and dedication to the entrepreneurial spirit. The company through its entrepreneurial spirit is a vehicle of attaining its goals. The elements of this entrepreneurial spirit involve caring for the people, being connected to communities, providing excellent customer service, doing the right thing, building relationship, creating of value to shareholders, and respecting all people.
Attaining a compelling marketplace does not mean that the organization has to be at the extreme end in differentiating. However, it means having the best differentiators combination that confer with the given marketplace advantage. This is a philosophy that Home Deport uses so as to gain competitive advantage. Home Depot has presented a challenge on traditional retailing assumptions. Unlike other retailers, the company has managed to attain its success through differentiation. The traditional approach in retail marketing is based on the idea that, since the inventories of products is identical, and then differentiation in its meaningful sense has to be built through location convenience and price advantages. However, for Home Depot this is a wrong assumption. The accessibility of products and low prices is within their concern, but differentiation for Home Depot is based on the people. The employees of the company exhibit powerful loyalty, and this enables them be the main resource of the company. These employees have trades expertise and work in building trades (Galup Business Journal, 2000).
Staging is a strategic element that is determined by the resources of a company. Staffing and funding of an initiative at any given level is determined by a strategic campaign and its urgency. Credibility and the pursuit of early winning do also impact on staging. Home Depot has tactics of gaining early footholds. The initial strategy is placing emphasis on low prices as a competitive strategy that has allowed the company to attain the strongest foothold in the industry that it is enjoying today. With the increased and stiffening competition, Home Depot has introduced new services that aim at differentiation. This is not simply with the aim of appealing to the masses, but tailoring more specific and individual products to fit individual segments of customer base. Home depot has, therefore, used low cost as its strategic staging and has made major efforts in differentiation of its products so as to further hold the market (Thodore, 2012). Through staging, Home Depot has managed to get new diversifications in the industry and gained international markets.
Home Depot, just like other major Fortune 500 companies, has established high bred cash balance plans and contribution plans. Due to the economic downturn, the company is expecting to gain a large share in its professional market through providing line products that are slightly below the high end lines. In the recent few months, Home Depot has managed to attain its profit and growth despite the volatile market. Since January 2013, Home Depot has bounced back its moving average by establishing a buy zone. The housing market rebound has significantly contributed to the market growth by delivering 285 in the rise of profits and 7% sales gain (Investors. Com, 2013).
General External environment
Home Depot is well known for the creation of opportunities through charitable contributions and community awareness. The company has undertaken strenuous efforts of impacting the community and being able to present to the community its good image. Though this can be seen as something out of the company’s goodness, business minded people see this as a way through which the company is developing its opportunities. In the company’s effort to help out people, the company has maintained constant business even at times of major economic recessions. This is by allowing its customers to pay low process to fix problems and buy materials.
This in the end gives Home Depot and opportunity that is not earned by industries and competitors. The company has over the recent years been increasing its earnings, and it is an amazing aspect at the times of recession. The company has managed to benefit from the construction of real estate expansion. This has resulted to reduced interests rate. Home owners through the low prices offered by Home Depot are able to save money and refinance their homes by putting money back to their homes (Home Depot, 2013). Most of this money goes to the various stores belonging to Home Depot.
The company bases its stores in various demographic studies. In 2002, the company increased its stores to more than 1000 as an effort of its opportunity. The stores are situated in highly populated areas close to the competitors. For example, in most of the southern areas, there is the “Do It Yourself,” stores. The customers living in the Southern region do have a culture of appreciating quality. The company has further explored the global market such as opening stores in Canada, Mexico and China (Yahoo Finance, 2002).
The main threats facing Home Depot is the down spiral economy in the United States. Every industry is affected by the economic downfall. Despite the fact that Home Depot has managed to maintain stable numbers during this period. It cannot render it safe, and there is a constant worry on how to maintain growth, expansion profitability. At the times of recessions, businesses worry about the customer’s spending.
Home Depot is also faced with the threat of completion. The main competition comes from Lowes since it competes at a national level at a consistent basis. Lowe and Home Depot have almost expanded at an equal rate. This poses a threat to Home Depot because the company will consistently have to differentiate its products and services. Home Depot due to the stiff competition with Low has to ensure that it does not have to sell almost identical products and at the same price as that of its rival. If Lowe will continue to grow in the same rate as Home Depot, then this is a vital aspect to watch out.
The organizational structure of the company is one which has established various stores in a single market. This is with the goal of having multiple units to serve a single market. This move is a weakness that the company has. The sales of the third quarter fell because of this strategy. Therefore, there is a need for Home Depot to taking the move of locating these stores apart and also to diversify the location of the stores. The decline of stock prices is a major weakness that Home Depot has to deal. This is because it will lead to shareholder dissatisfaction. There is also the challenge of lack of training, characterized by slow recruitments and training of new workers. Finally there is the challenge of Depot overload for it results to clustering and reduced earnings.
The company has topped with the implementation of modern day technologies in every store. The company has extended the amount spent on Research and development so as to lead to better systems. Implementation of digital business systems and condense operations.
Home Depot provides SPI (Service Performance Improvement) service that aim at providing customers with an enjoyable shopping experience. This reduces the culture of goods in shelves. The company introduced the self-checkout registers and this gives them a sense of control.
There are minimal chances of new entrants since the industry has attained its maturity. In cases where a new competitor aims to enter the market, it is put off by the popularity of Lowe and Home Depot
These two companies at the end of the day go home with most of the business. Therefore, there are minimal chances for a new company to enter the market so as to compete with the giant companies in the industry. The companies have already established their brand names and companies will always remain faithful and loyal to them. Home Depot has also managed to reduce its costs, and this has given Home Depot a chance to sell its products at the least price possible.
Rivalry among firms
Home Depot has to compete with 10 competitors, but Lowe Cos Inc is the main one since it competes with Home Depot at a national level. The other competitors are; Home base Inc, ACE Hardware, Woolham Lumber, Hughes Supply and True Value. The competition facing Home Depot is above the pace set by the industry. It has no equal competitor (Home Depot, 2012).
The industry has grown with regard to the competitors. However, there is no any other company that has a similar size as that of Home Depot. This enables the company to sell low price products compared to the smaller companies. The company provides customers with a diversified line of products because of its major resources and large corporate size. Customers are aware of the products offered by Home Depot and will prefer them than those of Ace Hardware. The industry does not have a fixed cost. Home Depot and other companies in the industry do not work on the same set and restricted schedules. Home Depot enjoys its option of buying resources and goods as needed. Via logistics the company is able to decide how much, where and when questions should be related to the demand of its products and its supply.
The increasing of market share for Home Depot has been through the opening of many stores in various parts of the country. The new property and growing real estate’s gives the company an opportunity for growth in future (Home Depot, 2013).
Fear of substitute
The industry does not create substitute services. Companies can only develop substitute services via lumbar sell and deliver them at a lowered cost to customers. Such places are not known among competitors, and this poses a major pain in the provision of substitute service that can be offered at a much lower price compared to that of Home Depot.
Buyer bargaining power
Buyers can decline the price of a product. Home Depot sells numerous products at a much lower costs that that of the competitors. The selling price for Home Depot is, therefore, one which customers are comfortable with. This makes the buyers buy products from Home Depot. There are no many negotiations with customers before agreeing on a price.
The stakeholders for Home Depot are companies which have contracts for the products to be sold by Home Depots’ stores. There are state regulations and city regulations that Home Depot has to abide. These shareholders have a minimal share when compared to other large companies.
Home Depot sets its price levels with the suppliers. The large quantity of products makes up the profit of each product. The main competitive advantage that Home Depot has been the large number of suppliers.
Value chain impact
Home Depot can provide products at a low price because it is able to eliminate distributors. Home Depot has its line of distributors and this result into a reduction of costs
Addressing weakness and threats
Home Depot has to have innovative and new ways of differentiating its products so as to deal with the competitors, mainly from Lowe. The company should not simply focus on reduced prices since this is an economic issue that may contribute to stagnant growth and low profitability. The company has to focus on maintenance costs. This is to prevent union organizational issues.
This paper has presented the five elements of that define Home Depot’s strategy. These are staging, vehicle, economic logic, differentiation, and arena of the strategies used by Home Depot for achieving its objectives. The paper has further presented the strength, weakness, opportunities and threats faced by Home Depot. The SWOT analysis has presented the internal environment, industry environment, and the overall industry that Home Depot is in. This includes a plan on how to deal with the mentioned strengths and weakness within the value chain.
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On June 25, 2013
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On June 25, 2013