The approach employed on behalf of SmartMart embraced a two-pronged strategy that entailed both a strategic growth initiative that allows SmartMart to explore additional potential revenue channels and opportunities, and the use of data and industry statistics to drive decision-making. It is incredibly easy to believe that a firm knows what their target demographic desires, but in the end figures are the most proven way to drive company policy.
The first decision made that reflects this growth/data-driven strategy was the move to push SmartMart to offer more local Community Supported Agriculture (CSA). The data suggested that this was the most viable growth strategy. In a survey where SmartMart customers highlighted key reasons for shopping at SmartMart, 34% cited expert service, 28% top quality produce, and 23% the store atmosphere. 1 In separate surveys 82% of respondents said SmartMart should offer more local products, while 87% stated SmartMart should have a more customized store offering that caters to locales. While uiding SmartMart towards a big-box store approach for growth would result in a more convenient shopping experience and lower prices in-store, the key drivers behind customers choosing SmartMart are the atmosphere, expert service, and top quality products. These elements help define the SmartMart brand. Turning SmartMart locations into superstores may drive down prices, but it would be much more challenging to replicate the SmartMart experience in a big-box setting, and equally as challenging to replicate the great service provided to customers in a smaller store environment.
Appealing to what drives current customers, and expanding on what the data shows in this respect, is advisable. Keeping the stores unchanged would be an error, as a large percentage of survey respondents reported a desire to have more local product offerings. While the seasonality of local goods is a concern for SmartMart (as the ability to capture revenue is dependent on having shelves stocked, and growing seasons may influence revenue generation if more local products are stocked), SmartMart need only expand its current local offerings to appeal to consumer demand. . SmartMart Stakeholders A firm’s value chain can be defined as a series of activities that are performed to support and deliver its product, and this same value chain is a reflection of company culture, strategy, and approach. 3 The product that SmartMart is delivering to its customers is embodied in the ethos of the store itself: a pleasant shopping experience driven by high quality service and an emphasis on sustainable, healthy eating.
The success of SmartMarts value chain is dependent upon appealing to its customers by successfully creating value through direct activities, or activities that directly create value for a uyer (ie. the great experience and wonderful help offered at SmartMart locations). 4 However, customers were not the only primary stakeholders taken into account whilst making decisions regarding SmartMart’s future growth. Primary stakeholders can be defined as individuals who have a direct involvement with a business (like a customer or shareholder) as opposed to some kind of indirect or tertiary involvement. Shareholders and investors in the company were also key stakeholders that were thought of in the value creation process, most notably in the biodiesel decision. The biodiesel decision allowed for either the in-house creation of biodiesel fuel, partnering with an established fuel company to create fuel, or acquiring a biodiesel firm. In this case the decision was made to ally SmartMart with an existing firm that has tried and tested experience in the creation and selling of biodiesel.
This course of action would result in lower revenues for SmartMart from the direct sale of the biodiesel (due to the partnering company charging for their services, and thus removing a chunk of the biodiesel’s contribution margin hat would normally flow to SmartMart), but is a good long-term strategy for SmartMarfs investors. Creating the biodiesel in-house or acquiring another company that can produce the biodiesel would result in either significant capital expenditures in the case of the former, or significant expenditures resulting from an acquisition in the latter.
Either course of action will result in an immediate and significant hit to the net income of SmartMart, which could result in less monies flowing to investors in the form of dividends or other means. Creating an alliance with an existing firm holds value-creating advantages for SmartMart investors. Firstly, net income will not decline as sharply because the contract between SmartMart and its partnering company can be paid for over time. This partnership will serve as an excellent testing opportunity for the biodiesel product performance.
Setting up the supply chain to deal with biodiesel manufacturing or acquiring another company for the purpose of biodiesel manufacturing is a large investment of time and resources. If the biodiesel product does not sell or perform as well as xpected, the worst case scenario for SmartMart in the partnership scenario is that it buys out the remaining term of its contract. Given that SmartMart has no experience manufacturing or selling biodiesel, it makes sense to defer to a tried and tested company that has experience in this space.
SmartMart can learn from this company, and if the product launch succeeds SmartMart may be able to explore other biodiesel creation methods in the future. This strategy seeks to avoid a complete vertical integration of the biodiesel manufacturing process. Vertical integration can be defined as the division of activities between a firm and its suppliers, channels, and buyers, and in the case of SmartMart this integration would encompass everything form the resource gathering to the packaging of the biodiesel product. The strategy instead pursues a coalition approach to value creation, which results in a partnership between SmartMart and an existing firm that broadens the scope of the SmartMart without broadening the firm itself by contracting work out to an independent company. 7 3. Value Creation vs. Capture Value creation and value capture played two different roles in SmartMarts strategy. Value creation is being able to recognize that your firm or organization can provide something of worth through interactions with other firms or individuals. Value capture is the subsequent monetization of this created value; it is possible to create value (Facebook), but in order for a firm to sustain itself it must be able to profit from this created value (advertisements). 9 Value creation and value capture served different roles in the SmartMart strategy. Value creation involved recognizing what SmartMart offers to primary stakeholders (such as customers) that retains them long- term. As stated above, 23% of customers stated it was the atmosphere of SmartMart, and 28% said it was the products offered by SmartMart.
This perception of value is captured through sales, however sales are dependent upon value creation in the first place (and herein lies the cyclical relationship between value creation and value capture). In the case of biodiesel, value creation occurs from SmartMart offering an ecologically friendly product that s of worth to consumers, whereas value capture occurs from the sale of that product and that sale being profitable for SmartMart.
Continuously creating value is vital to any business, and the strategy employed by SmartMart sought to maintain and expand this value offering by maintaining the environment and service that SmartMart currently provides. If SmartMart were to create big-box stores then the same value that is currently being created for SmartMart customers would cease to exist; the intimate service help and the friendly environment are simply not achievable in a big-box setting. Improving local product offerings also creates more value for SmartMart. As stated above, 82% of survey respondents said they wanted to see more local goods on SmartMart shelves.
Advising SmartMart to create niche stores with a local-good focus allows for the chain to continue creating value through its pleasant environment, and its ability to offer in-demand local-goods. The above decision making will allow SmartMart to engage in enlightened stakeholder theory, appealing to the desires of its customers and shareholders (two crucial stakeholders) and thereby maximizing the long- erm value of the firm. 10 4. Challenging Decision The most challenging decision in this exercise surrounded the store expansion strategy.
This was challenging because a reported 68% of those surveyed reported that they shop at big-box stores, while a large segment of respondents (42%) said theyd like to see SmartMart compete with big-box stores. 1 1 Going against the current trends in shopping data was a necessary but challenging decision, because without the SmartMart experience, the SmartMart brand would simply cease to exist and offer the same value that as crucial to its operating ethos. Through this exercise gained a strong appreciation for stakeholder management. ealized the importance of a brand and the brand experience to the value creation process as perceived by stakeholders. I realized that some decisions benefit multiple primary stakeholders (customers and investors in the case of biodiesel and store growth) while those same decisions negatively influence other stakeholders (the decision to purchase biodiesel may result in more corn growth and alternative crop shortages). It is interesting how a single decision can nfluence so many parties, but it is the role of the firm to weigh these decisions and maximize its value creation and capture.