It’s finally time for the first post of Part II as we continue to study Nordstrom, Inc. and what sets it a part from other companies in the retail industry. In Part II, our studies of Nordstrom will shift from the logic of strategic analysis as studied in Part I to a more precise focus on their unique strategies as a business. Let’s get started!
The Economic Value of Cost Leadership
First up for our Part II discussion is the topic of cost leadership. Cost leadership is considered to be so important in the literature of business strategy that is, along side product differentiation, often referred to as a generic business strategy. Cost leadership refers to the strategy of a firm who chooses to focus on gaining advantages in the market by reducing its economic costs below those of its other competitors; however, this does not mean that the firm has abandoned other business or corporate strategies by choosing to make effective use of cost leadership.
Cost Leadership and Environmental Threats
It is helpful to estimate the economic value of cost leadership by strategically analyzing its effect on the business relative to the models of environmental threats and opportunities. Cost leadership has the potential to greatly reduce the threat of new entrants and the threat of rivalry and substitutes, as well as the threat of buyers and suppliers. Now that we have laid a little foundation, let’s take a look at Nordstrom’s cost leadership strategy as it relates to these potential environmental threats.
Cost Leadership and The Threat of Entry. Firms who are cost leaders are able to reduce the threat of new entrants by creating cost-barriers to entry for firms wishing to enter the market. Nordstrom is able to create this barrier by focusing on its targeted market of middle class individuals. This target market of middle class individuals forces Nordstrom to keep costs low in order to remain committed to affordable and accessible clothing. Creating this cost-barrier to entry also keeps Nordstrom accountable for maintaining high-brand awareness and competitive advantage.
Cost Leadership and The Threat of Rivalry and Substitutes. Cost leadership can be very valuable to a firm when it comes to preventing its competition from entering a new market segment. As for Nordstrom, this strategy has been extremely effective with the expansion of Nordstrom Rack. Nordstrom is able to operate as a low-cost firm through its operations at Nordstrom Rack where prices are set slightly below the prices of higher-cost rivals. As such, Nordstrom Rack has the potential to appeal to customers who are more price-conscious and thus rapidly increase their market share as a result of being a low-cost leader.
Additionally, substitutes act as a threat to a firm when their cost and performance become more attractive to customers. Nordstrom has uniquely positioned itself to act as a barrier to threats of substitutes due to its variety of strategic brand partnerships and product offerings. Thanks to its diverse inventory and cost-sharing abilities, Nordstrom is able to keep their products and services attractive relative to substitutes.
Cost Leadership and The Threat of Buyers and Suppliers. Cost leadership can also reduce the threat of buyers because lower prices threaten firm revenue. These firms are able to absorb greater costs as needed for increased quality while still maintaining a cost advantage over the competition. Furthermore, suppliers can also become a threat to a firm by charging higher prices and/or reducing the quality of the goods they supply. Where firms are faced with these threats, a cost leader will be able to reduce the impact of these threats due to their increased flexibility in absorbing higher-cost supplies while still earning a profit.
Nordstrom is able to minimize these threats imposed by buyers and suppliers by maximizing supply chain efficiency. Threats of rivals and substitutes are also well-defended by keeping prices below those of competitors while keep product offerings unique and intriguing to target markets. The threat of entry is then further reduced by sustaining brand awareness and maintaining a competitive advantage. This combination of valuable cost leadership strategy and product differentiation has enabled Nordstrom, Inc. to experience and achieve intense growth.
Source: Butler, A. (2018, January 10). Nordstrom Generic and Intensive Growth Strategies. Retrieved February 24, 2020, from https://www.essay48.com/12804-Nordstrom-Porters-Generic-Strategies
Styled Strategy 