Australia’s $43 billion per year home improvement market is one of the few retail segments that has continued to grow over recent years. Masters Home Improvement, a $3 billion venture between Woolworths and Lowe’s, sought to challenge Bunnings’ market dominance by offering Australian consumers a retail experience like nothing else. Whilst targeting tradespeople and the general DIY public, Masters also sought to entice whitegoods consumers and online shoppers. Yet, despite (or because of) this broad offering, Masters only managed to secure 2% of the home improvement market segment with Bunnings expanding to 20.7%. So what went wrong?
Whilst corporate hubris, over-confidence and rapid, costly expansion inevitably contributed to Masters’ downfall, much of the blame can also be attributed to poor marketing strategy.
Divide and conquer!
The Segmentation, Targeting and Positioning (STP) approach is an essential marketing strategy and Masters should have utilised it better. Market segmentation helps to divide potential customers into groups of people with similar behavioural, psychological, geographic or demographic characteristics or needs (Iacobucci, 2013). Utilising this approach, companies can assess each market segment thoroughly to determine which segment is most profitable and then target this market. Unlike a broad marketing strategy where a company offers all things to all people, this allows for specific products and services to be developed in order to target a smaller group of most profitable customers. These products and services, coupled with price, promotion and place, strategically position the company to maximize participation with the selected market segment.
Defining a segment too broadly can have a negative effect as this allows competitors to target more narrowly to secure that segment (Active Marketing, 2016). In Masters’ case, their ‘big box’ offering attempted to capture a far wider retail segment and, having failed to understand their target market adequately, this resulted in customers preferring to go elsewhere.
Masters of their own demise
Part of Bunnings’ success with customers is its excellent product range, employment of ex-tradespeople who can credibly advise customers about what products to buy and how to approach DIY tasks, and its appeal to professional tradespeople. It has managed to cater for the large home improvement market by strategically positioning its stores in multiple locations for convenient access and broad patronage. Bunnings claim to offer its target customers the widest product range at the lowest prices, backed with the best service.
Masters, on the other hand, thought that having bigger stores with a broader product offering would be enough to attract people away from Bunnings. They were wrong.
Masters erected stores within the immediate vicinity of Bunnings sites at inferior locations, with some sites having been rejected by Bunnings previously, and stocked less common products at higher price points, representing a poor positioning strategy. Despite a wide product range, exclusive supply arrangements between Bunnings and major brands such as Dulux meant that Masters were unable to stock identical brands, forcing customers to make more distinct product choices and negatively impacting their targeting capacity. Product seasonality and store format changes meant that customers could not easily find products in store and their attempts to make stores more ‘female-friendly’ lead to an alienation of many tradespeople who preferred the Bunnings format; another failure to understand its target market. Masters’ online store, although convenient for time-poor shoppers, was devoid of interaction with staff and limited the participation of customers who preferred going instore for advice when purchasing goods, and their foray into whitegoods meant that it was broadening its target market but struggling to compete with other large, experienced whitegoods retailers. The list goes on.
Coupled with uninteresting advertising that underperformed against Bunnings’ “Lowest prices are just the beginning” marketing campaigns, Masters, for all its offerings, couldn’t penetrate the home improvement market segment with any real effectiveness as it failed to understand and service their target market in the home improvement segment adequately.
Lowest prices are just the beginning
As their main goal was to win market share from Bunnings, Masters should have focussed solely on an identical market segment, identified what Bunnings did so well to capture this segment and done it better, rather than creating a different store format and broadening their product offering in the face of competitors who retailed similar items better. Hiring ex-tradespeople, working with brands to entice them to break product exclusivity arrangements with Bunnings, establishing a smaller-scale store footprint in better locations, decreasing their range to more affordable or discounted products and positioning their product offerings in considered locations would have helped Masters to appeal more to the home improvement market. However, Masters really should have tested their business model on a few stores to ascertain viability and generated customer feedback before commencing a large-scale roll-out. They could then have revised their business according to updated STP modelling rather than staying the course and continually investing in the hope that the customers would come.
$3.7bn later, they still haven’t.
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