Q1. Evaluate 7-Eleven’s competitive advantage using the Michael Potter’s Five Forces model. 7-Eleven, the largest convenience retailer store in the world has been operating in more than 15 countries and well known as franchise business that operated by independent business operators running local neighborhood stores. Despite the intense competition in the market, 7-Eleven has struggled to maintain their leader position in the market. In order to sustain their competitive advantage, 7-Eleven has used information systems to keep ahead of rising customer expectations and increasingly challenging business environment.
The Potter’s Five Forces Model has been used to analyze and evaluate the competitive advantage of 7-Eleven. 7-Eleven currently have various competitors, which includes superstores, hypermarkets, convenience stores and even traditional markets. The intense competition has driven 7-Eleven to enhance their competitive advantage through several ways. 7-Eleven has been able to stand out due to their highly focused on customer-orientation and effectiveness of the information systems they used to keep track and analyze their customers’ demands that resulted in product differentiation.
The high switching costs and low fixed costs of 7-Eleven also have prevented their rivalry from attracting their customers by price reduction. In addition, 7-Eleven’s production is currently at the minimum efficient scale that known as the most cost efficiency level of production. They have maintained a strong customer base and remained the loyalty of their customers. Therefore, it has created a barrier to new entrants. “The market power of suppliers can always have a significant impact on firm profits” (pg123).
The consolidated of four times order per day has resulted in the consistency and strong relationships between 7-Eleven and their suppliers. Furthermore, 7-eleven is also known as the model of vertically integrated company who even able to customize their products using their own resource and operate their own distribution channel. a. What strategic forces does the Retail Information System seek to address? The strategy of the Retail Information System has helped 7-Eleven becoming the top performer in convenience retailing services. -Eleven has been selling high quality products through a wide supply chain network. Retail Information system anticipates the information needs of retail managers, collects organization stores relevant data on a continuous basis and directs the flow of information to the proper decision makers. Retail Information Systems has enabled 7-Eleven to keep tracks of its purchase transactions and analyze them to information about customer expectations in products. This system collects data from point-of-sale terminals in every store by using Electronic data Systems (EDS).
With the ability to identify sales trends and improve product assortment, the products are customized to fit the precise specification of individual customers that implemented product differentiation strategy. It has provided 7-Eleven with substantial advantages over competitors and reduced the threats that brought by rivalry forces. In addition, the Retail Informational Systems also helps managers to determine which item to order and the exact quantities that need for their stores by using the storage of information of sales of each products.
In order to lower the cost of delivery and validate the delivery process, 7-Eleven manages their distribution by working closely with their distributors. The powerful databases include customer databases, vendor databases and product category databases, help in facilitating the operations of the business and improve business performance by using reliability data. The long-term contact that benefits each other’s has built a strong relationship between the distributors and reduces the forces of supplier power that might risk 7-Eleven. The databases that used by 7-Eleven also enabled them to keep the cost low.
It has eliminated the chances for new entrants to compete with them by using low price strategy. 7-Eleven plays as a “monopolist” in the market, lead in the convenience retailing for more than 75 years. The strong base of their brand name is irreplaceable in the market. b. How does the use of the Retail Information System help 7-Eleven achieve a competitive advantage? 7-Eleven has able to be rooted in the industry due to the effect of the Retail Information System. Their customer databases has allowed them to capture crucial data on customer base and ensured that they are providing the exact demand of customer.
The databases have also enabled 7-Eleven to keep track their product and refine their inventory system. The EPS system that utilized by them has helped them to identify exact demand of customer and eliminate the slow-movement product. Retail Information System has built the differentiated merchandising strategy in their business model that become one of their competitive advantage. The time distribution system provides customer with a greater range of product in a limited space that resulted fully utilized the shop space. It keeps the cost of production at the minimum scale and low.
Their automated back-office functions such as sales and cash reporting, payroll, gasoline pricing and inventory control are connected directly to the company accounting system. It supervises and standardizes all the performance of the stores and employees. The technology advances that helped in identify sales trend, it helps them to develop new offerings that attract new customers and increase transaction size. The ability to make delivery adjustment reduces the risk of the delay. Thus, the systems that maintain control over product selection and stocking have illustrated the strategic sourcing partnership of 7-Eleven.
Retail Information Systems helps in increasing value of 7-Eleven licenses and expanding internationally and domestically. The core that believed in their business model are always merchandising skill that emphasized on pricing, positioning, and the promotion of gasoline, ready to eat food, and sundries for consumers driving cars. In order to rebuild their competitive advantage, they have replaced with outsourcing, relinquished direct ownership of many part of their business. They pick the right providers to fulfill their requirement and expertise scale.
They identify the deeper level of collaboration with their supplier to strengthen their advantage. 7-ELEVEN has narrowed their competitors by leveraging the one stop shop. They become a one-stop shop that providing various product and services such as ATM service and expanding their core business into Internet provision that embraced customer service. 7-Eleven has achieved a distinct competitive advantage by using their information systems. Q2. What are the benefits and potential disadvantages of 7-Eleven’s Retail Information System?