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Innovation strategies for independent garden centers

Cornelissen, S. (2011) Innovation strategies for independent garden centers.

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Abstract:This thesis is dedicated to garden centers, which want to innovate in order to improve their business model, respectively their basis of revenue. The heavily changing market situation for garden centers in the past years challenged many independent garden centers. For example, the competition in the sector of plants and flowers increased enormously. Food-discounters, home improvement centers and other non-sector related organization started to offer plants and flowers. Most of the times with all their affiliates at once. In addition, there are also dependent garden centers, organized in (franchise) chains also trying to get the most out of the situation. Consequentially, independent, one-affiliate garden centers have to cope with the changing conditions in order to stay on the market. One way accomplish this, is to innovate. The intent of this thesis therefore lies in the proposal of strategies to innovate, which could be a way to sustain profitability. As this sector experiences a lot of change, three distinct types of independent garden centers are encounter-able in the sector: • Scenario 1: being cheaper. Many garden centers started to sell, vast amounts for low prices, based on quantity discounts. • Scenario 2: becoming specialized. Many garden centers tried to differentiate themselves in order to stop competing with hardware stores, home improvement centers, supermarkets and garden centers from scenario one. • Scenario 3: integrating businesses. Many garden centers started to integrate ideas from different sectors. For example, there are companies, which now offer ponds or BBQs including auxiliaries, bathroom- or kitchen equipment. Important to note, there are many garden centers, which fit in scenario two and three at the same time. This study will be subject to the second and third scenarios type. Those garden centers needed to come up with much creativity and a will to change, in order to stay on the market or improve their position in the market. To come to a conclusion and to provide innovation strategies, first an initial overview over the sector is needed. The first sub-research question covers therefore a sector analysis. In order to receive more differentiated input regarding the innovation approaches, the sectors in The Netherlands and Western Germany have been investigated. The research question is as follows: • What does the sector situation look like in The Netherlands and Western Germany, and which developments and trends can be identified? To conduct the sector analysis, the theory of Porters ‘Five Forces in the Marketplace’ (1980) have been used. There are many drivers and factors, which determine a situation and consequentially the developments or changes. The analysis in based on interviews with branch-experts, interviews with directors of garden centers, as well as qualitative and quantitative sector information. Summarizing, it can be stated, the most threatening forces in the sector originates from the attitude of the customers. The trends in their behavior like ‘wanting things to go as easy as possible’ and their rising expectations regarding service and products forced garden centers to react. To accomplish this, garden centers improved heavily on their services and products. Often, they also often broadened their product assortments. Furthermore, an increasing number of garden centers try to be recreational to customers and offer literally a shopping experience. ‘Buyers’ can therefore be categorized as the most threatening force in the sector of garden centers. There is also an inclining number of garden centers becoming more divers regarding product assortments. They are on the shift away from their core business of plants and flowers. Next, the ‘potential entrants’ form the second most threatening force, especially competitors from different sectors, which offer plants and flowers to lure customers only. These are the most important determiners of the sector situation. Forces outgoing from ‘substitutes, suppliers and the rivalry among competitors’ provide only modest threats, which garden centers are able to handle well, as the investigation has shown. The second sub-research question prepares the main part of this thesis. It covers the process of gathering and interpreting innovative ideas around garden centers: • Which successful innovative ideas have been deployed by garden centers and how has it influenced their business models? To boil down innovative ideas, garden centers, which are successful on the ‘first sight’, have been investigated. During that process, participants in The Netherlands and Germany have been visited and interviews with at least one director have been conducted. Those interviews were held in a semi-structured manner, using the concerning theory background. Accordingly, three types of questions have been posted. The first set includes questions regarding the structure and typical elements of the organization. To understand an organization in more detail, the theory-model throughout this part is the so-called McKinsey 7-S Model. In a second step, the business model and probable changes of it (of the recent years) were of interest. Giaglis et al. provide a framework aimed to describe a business model. The obtained knowledge during an interview after the first two sets helped to encounter innovative ideas, which further have been investigated in with a last set of questions, considering theory on product and service innovation. This contains mainly methods to identify and to interpret innovative ideas in general terms. In the end, the innovations encountered have been reflected on the business model of an enterprise to state the influence on it. Resulting, it becomes clear, the encountered innovative ideas have all their own characteristics regarding the influence on a business model and their degree of innovativeness. One of the most common innovative approaches, aimed on up selling is the ‘product presentation in examples’ technique. It basically comes down to place products into a home alike situation, for example in imitated living rooms, kitchens or bathrooms. This technique enables customers to decide more easily whether they find products like plants or any decoration suitable. Such style changes generally do not have much influence on business models as they belong to the least radical form of a service innovation. Implementation has shown, application of this idea is focused on the improvement of an existing business model. Another common innovative idea is to ‘declare a garden center as a gift shopping center’ by first introducing ‘gift corners’ and advertising the focus on gifts. Considering the incremental nature of these innovative implementations, they tend to improve an existing business model too. Although implementations sound easy and simple, these techniques have been proven to be highly successful. The ideas so far have in common that they do not alter a business model heavily. Implementation of them means refining and improving the core business model around plants and flowers. A second set of innovative implementations encountered have in common that they are of a more radical kind. By implementation of those, the impact will be enormous and even complete new or parallel business models could emerge. For instance ‘adding additional products to the assortment’ usually comes down to the point that an increasing number of non-plant of flower related products become introduced in a garden center. All of the investigated garden centers did that, some to a very extensive degree, others less. Depending on the degree, garden centers may shift away from their core business (i.e. plants and flowers), which has high impact on their business models. Most popular product groups added are BBQs, outdoor kitchens, kitchen- and bathroom articles. Another example of an innovative approach includes integrated 'Catering Services'. This can be seen as a new service for the market presently served and actually means, the business model of a garden center becomes extended with an additional one. The advisory part of this study is answered by sub-research question three, which is formulated as follows: • Which explicit operational advice can be given to independent garden centers as a strategy to innovate? The proposed strategies are divided according their influence they will have on an existing business model. The first strategy elaborates a more conservative way with small influences on a business model (innovating the core business model). The second strategy aims to garden centers, which are looking for profound change (targeting for new/additional business models). Strategy 1: Innovating the core Business Model The main element of this strategy is to introduce product presentation in examples. That can be accomplished by imitating living rooms, kitchens, bathrooms, verandas and house entrances in a perfect manner, that customers are able to recognize similarities of the environment to their home situation. If a garden center offers high quality products in addition, it can be very useful to try to make customers feel privileged when shopping by emphasizing the special appearance and the quality level of products. On operational level, that would mean to exclude cheap looking products and to ask fair prices. Another important innovative advice, which can be realized without affecting the business model, is to create gift-corners in every department. Thereby is meant, that every department has a corner or a table on which constellations for gifts are presented. Strategy 2: Targeting for new/additional Business Models The main advice in this strategy is to inaugurate new product groups. Common, additional product groups include BBQs and outdoor kitchens, kitchen/bathroom equipment, furniture for outside purposes, fishes and ponds, pets, fashion, literature (e.g. for children, cooking, planting, gardening), food delicacies, wine, writing utilities and cosmetic articles. These groups are proven to be financially attractive in garden centers. Another, also very attractive way to innovate is to integrate a café or a restaurant in a garden center. When a garden center is diversified regarding its products and has catering facilities in addition, it is very likely customers schedule several hours for a visit. On the one hand, this experience can be emphasized by additional offers like hiring clowns for children, hiring famous chefs for a more extensive BBQ presentation or offering classes for topics around gardening or decorating. On the other hand, those programs and activities need to be advertised in a way that underlines the leisure-time-factor as well. On the long term, the garden center will develop itself to a facility with recreational-factor to spent leisure time. When applying the propositions of strategy two, the impact on the existing business model will weight heavier. Depending on the degree of integration, even a shift to new business models for garden center can be the result. Both proposals are intended to improve a garden centers basis to create revenue; in other words, the business model will be improved.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration BSc (56834)
Link to this item:http://purl.utwente.nl/essays/62310
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