Competitive Advantages and Disadvantages of Chains
There are abundant competitive advantages for chain retailers:
● Many chains have bargaining power due to their purchase volume. They
receive new items when introduced, have orders promptly filled, get
sales support, and obtain volume discounts. Large chains may also gain exclusive
rights to certain items and have goods produced under the chains’
brands.
● Chains achieve cost efficiencies when they buy directly from manufacturers
and in large volume, ship and store goods, and attend trade shows sponsored
by suppliers to learn about new offerings. They can sometimes bypass wholesalers,
with the result being lower supplier prices.
● Efficiency is gained by sharing warehouse facilities; purchasing standardized
store fixtures; centralized buying and decision making; and other practices.
Chains typically give headquarters executives broad authority for personnel
policies and for buying, pricing, and advertising decisions.
● Chains use computers in ordering merchandise, taking inventory, forecasting,
ringing up sales, and bookkeeping. This increases efficiency and reduces
overall costs.
● Chains, particularly national or regional ones, can take advantage of a variety
of media, from TV to magazines to newspapers.
● Most chains have defined management philosophies, with detailed strategies
and clear employee responsibilities. There is continuity when managerial
personnel are absent or retire because there are qualified people to fill in and
succession plans in place. See Figure 4-4.
● Many chains expend considerable time on long-run planning and assign specific
staff to planning on a permanent basis. Opportunities and threats are
carefully monitored.
Chain retailers do have a number of disadvantages:
● Once chains are established, flexibility may be limited. New nonoverlapping
store locations may be hard to find. Consistent strategies must be maintained
throughout all units, including prices, promotions, and product assortments.
It may be difficult to adapt to local diverse markets.
● Investments are higher due to multiple leases and fixtures. The purchase of
merchandise is more costly because a number of store branches must be
stocked.
● Managerial control is complex, especially for chains with geographically dispersed
branches. Top management cannot maintain the control over each
branch that independents have over their single outlet. Lack of communication
and delays in making and enacting decisions are particular problems.
● Personnel in large chains often have limited independence because there are
several management layers and unionized employees. Some chains empower
personnel to give them more authority.