A “dominant strategy” is a strategy used by retailers to focus on opening stores in specific areas when developing a chain. For example, have you ever seen convenience stores opening in a particular area? This strategy is being used to expand the market share in the area by opening stores in a concentrated manner.
This is a strategy used by many companies in Japan, including 7-Eleven and APA Hotels. This is a recommended measure for companies that want to expand their business by expanding their chain of stores. In this article, we will explain the outline and benefits of the dominant strategy, key points when implementing it, and examples of success.
What is a dominant strategy?
What is the dominant strategy, which is a strategy used by many Japanese companies?
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Strategy to focus on opening stores in specific areas
A dominant strategy is a strategy that focuses on opening stores in a specific area. “Dominant” is a word that means “dominant,” “dominant,” or “in a position of superiority.” By opening stores in a specific area, the aim is to establish a stronger presence than the competition. has become a strategy. An important point is that by opening stores in a concentrated manner, you can retain consumers in that area, and if you can build a relationship of trust with consumers, it will be difficult for competitors to enter.
Recommended for companies who want to expand their chain of stores and expand their business.
This strategy is often used in the retail and restaurant industries that operate chain stores, and is adopted by many companies in Japan, making it an extremely effective strategy.
People tend to think, “Rather than opening multiple stores in the same area, wouldn’t it be better to expand widely in various areas?” However, by deliberately opening the same store in a narrow area, you can monopolize that area. This can bring huge benefits in terms of profits and costs.
Seven benefits of a dominant strategy
Although it is a dominant strategy of concentrating store openings, it can bring great benefits in various aspects such as profits, costs, and management. The main advantages are as follows.
Increase visibility in specific areas
By implementing a dominant strategy, people in a specific area will have more opportunities to use and see your store’s products and services, which will greatly increase your visibility in that area. When opening a store that has just opened and expanding it widely in many areas, it requires a lot of time and money to gain a certain level of recognition. However, by expanding to a limited area, you will be able to gain recognition relatively quickly and your business will proceed smoothly in terms of profits.
Also, by expanding to a specific area, there is a high possibility that word of mouth and reputation among neighbors will spread. As your topic becomes more frequently talked about within the region, it will have a positive effect on increasing awareness and spreading your brand.
Marketing measures tailored to the area can be implemented
By opening stores in specific areas, you can develop marketing measures tailored to the local environment and needs. Population size, age group, demand, income range, and lifestyle vary greatly depending on the area. After analyzing this data, you can formulate strategies for developing products and services, setting prices, and advertising methods. In addition, since you can operate your store according to the needs of the area, you can strengthen your presence in the area and build relationships of trust.
If you want to expand your business widely in many areas, you must conduct research and analysis in each area and manage each store individually to meet the needs of that area. However, if you have multiple stores in one area, marketing focused only on that area will increase your ability to attract customers and reduce time and cost costs. .
Reduce costs per store
Utilizing this strategy can help reduce various costs per store. Mainly, the following points can be reduced.
As explained in the previous section, since we concentrate on opening stores in specific areas, it is possible to conduct research and analysis focused on that area. Based on that data, you can develop products and services tailored to a specific area, set prices, and select advertising media and methods for people in that area, which greatly reduces the effort and cost involved. can be reduced to
Logistics can be made more efficient
By opening stores in specific areas, we can expect greater efficiency in terms of logistics.
At convenience stores, supermarkets, etc., the products sold at the store must be delivered by truck from the base location. A single truck is often used to deliver to multiple stores, but if the stores are far apart, the delivery burden increases, and there is a possibility of product quality issues. Issues arise on the front.
When implementing a strategy, opening stores in specific areas means that they are close to each other. This has great advantages in terms of logistics, such as being able to deliver products in a short time and while the products are still fresh.
In addition, by implementing strategies such as setting up a distribution center in the area where you have opened a store and opening stores along the delivery route, you will be able to further reduce the effort and cost of shipping.
Flexible use of inventory
Having stores clustered together in the same area also allows for flexible use of inventory between stores.
For example, if a certain product is sold out, it will be easier to move it from stores that have it in stock. On the other hand, if there is a possibility that the product will remain in stock, it is possible to smoothly move the product to a store where the product is selling well or to a location with a large number of store visitors.
Flexible inventory management helps reduce inventory management costs and prevent lost sales opportunities.
Efficient staffing can be done
The close proximity of stores also allows for efficient staffing.
For example, if a store suddenly becomes short on the number of employees, you can respond by deploying support staff from nearby stores. Additionally, because the stores are close together, supervisors who manage and manage chain stores will be able to visit many stores while reducing travel costs. By reducing the burden of visiting stores, you will be able to spend more time planning measures to improve service.
It becomes difficult for competitors to enter
Increasing name recognition and market share through a dominant strategy will prevent competitors from entering the market. Some companies have already established a certain level of branding in that area, so even if competitors were to enter the market, they would have to face high hurdles such as acquiring new customers, and would not be able to expect much success.
Since you can operate your business while maintaining your advantage, you don’t have to spend a lot of money on countermeasures against competitors, and you can concentrate on always meeting customer needs.
Three disadvantages of dominant strategy
While there are great benefits in terms of profits, costs, management, etc., there are also some disadvantages. The main disadvantages are as follows.
There is a risk of competition between chain stores.
Having multiple similar chain stores in the same area can lead to competition among stores for customers.
Moderate competition among chain stores to improve service can have a positive impact, but if the sense of competition becomes too strong, the atmosphere as a company becomes bad and unnecessary costs are incurred. This may have negative consequences, such as lower profits.
Rather than proceeding with business with a strong sense of competition, it is important to have a sense of mutual improvement.
Affected by local environmental changes
By opening stores only in a specific area, there is the possibility of large losses due to environmental changes that occur in that area.
For example, if a sudden disaster were to occur or residents migrated to other areas, the number of customers in the target area would decrease, and sales would decline significantly. If the number of customers and sales decrease, the operating costs of the store alone will become a huge burden, and it is possible that the business will face major risks.
In addition, business may be directly affected by sudden changes in urban planning, changes in transportation networks due to changes in expressways and stops, and changes in commercial areas due to the opening of large stores such as shopping malls in the vicinity. There will be.
Difficult to expand into new areas
Since we are opening stores in specific areas, expanding into new areas can be difficult. You may be considering expanding to a different area to expand your business, but since the operations of existing stores are often specialized in that area, it is difficult to utilize that data and know-how in new areas.
When opening a store in another area, you will need to conduct research and analysis from scratch again.
Dominant strategy and Lanchester strategy
There is a term similar to Dominant Strategy, such as “Lanchester Strategy”. I will explain what kind of relationship there is.
What is the Lanchester Strategy?
Lanchester Strategy is a strategic theory that classifies the “strong” who have superior military power and the “weak” who have inferior military power, and considers how each can fight to turn the tide of battle to their advantage. This is a war theory that was originally proposed during World War I, but it is thought that it can be applied to management, and has been proposed as a management theory.
For example, in management, the so-called strong are “companies with abundant funds and number of employees” and the weak are “companies with limited funds and number of employees.” In this case, if a business strategy is properly implemented, even the weaker companies (companies with limited funds and number of employees) can defeat the stronger ones. Examples of strategies include focusing on a specific field and monopolizing the market share, or differentiating your business to acquire a customer base that large companies cannot reach.
The importance of making full use of the Lanchester strategy
The Lanchester Strategy is a strategy that classifies the “strong” and “weak” and considers how each can fight to their advantage. The dominant strategy, which is a strategy aimed at establishing a company, can be said to be a part of the Lanchester strategy.
Small and medium-sized businesses, which are classified as vulnerable, concentrate their business in a “region” and establish a brand in that area before large companies. When considering a dominant strategy, first try to deepen your understanding of the Lanchester strategy.
Key points when implementing a dominant strategy
Dominant strategy has both advantages and disadvantages, but if used properly, it is an effective strategy that can lead to business expansion and development. When using this strategy, keep the following points in mind.
Thoroughly conduct a preliminary survey of the store opening area
Make sure to conduct thorough research before choosing the area where you want to concentrate your store openings. Please do some research based on the following items.
If the population is on the decline or your competitors have already opened multiple stores, it is unlikely that you will be able to make a profit even if you open a store in that area. Additionally, if there is expected to be demand for your service in the area where you are considering opening a store, there is a possibility that a competitor’s service is already in use. In this case, you need to devise ways to create features and points of differentiation that are unique to your company.
Conduct research and analysis of competitors
When opening stores in a specific area based on a dominant strategy, be sure to closely research and analyze your competitors. It is important to try to understand the products and services offered, store size, advertising and customer attraction measures, customer demographics, etc. Rather than opening a store in the same genre as your competitors and competing on price, it is more effective to clarify the points that differentiate you from your competitors and offer something unique to your company.
Furthermore, depending on the area, competitors may already be opening stores intensively and adopting a dominant strategy. In order to gain market share in that area, it is likely that a large amount of time and money will be required. However, by researching and analyzing your competitors, you can decide not to open a store in that area. You can make a strategic withdrawal and choose areas that your competitors have not yet reached or have not yet been able to dominate.
Risk management measures
Having many stores concentrated in a specific area means that if something goes wrong, multiple stores will be affected at once. Therefore, it is important to further strengthen risk management measures.
For example, in the retail industry and restaurants, there are many cases where human resources are a problem. There are many cases where businesses have opened many stores but are unable to recruit and train human resources, making it difficult to continue the business.
Also, consider the reviews and reputation of customers who live in the area. Since there are many stores in the area, it is likely that people in the neighborhood will often talk about the stores. If bad word of mouth spreads there, it will affect the stores in that area as a whole. In order to receive good reviews and reputation, you need to pay attention to the quality of your products, services, and customer service.
Key points when joining a company that develops a franchise based on a dominant strategy
I think some people who are running a business join a chain store that develops a franchise based on a dominant strategy. This is an opportunity to expand your business significantly, but it is important to understand some points and precautions.
Check the demand, sales and profit prospects for the area where you will open a store
If the company that is the franchise headquarters has already decided on the area in which to open a store, check the reasons for opening the store based on what kind of demand there is in that area, how much sales and profits are expected, etc., including the rationale. Let’s do this. If a company is thinking of expanding a franchise after conducting proper research, they should have selected an area based on solid evidence. Be sure to check the status of your competitors’ expansion, the opening status of other stores, and forecasts for customer attraction and profits.
Level of support for opening a business
Generally, franchisees are able to receive ongoing management support from the franchise headquarters before and after opening. However, the level of support provided varies by company. When joining a franchise, be sure to determine what kind of support you will receive and whether the system is in place to ensure stable management in anticipation of the future.
Discretionary authority in store management
When joining a franchise, check to see how much discretion the owner has in operating the store. The degree of this discretion varies depending on the franchise headquarters. Of course, a certain amount of discretionary authority is necessary from the franchise headquarters in order to run the store smoothly, but if the franchise headquarters has too much discretionary authority, problems may occur at the store in various ways. Be sure to check the details of your discretionary rights before signing a franchise agreement.
Success stories of dominant strategies
There are many companies that have successfully developed their business by successfully utilizing the dominant strategy. It is highly recommended that you develop your business by referring to the success stories of these companies. Here, we will explain the success stories of 7-Eleven, APA Hotel, and Starbucks Coffee.
Seven-Eleven
The convenience store 7-Eleven started its dominant strategy centered on Koto-ku, Tokyo, where its first store was located, and has steadily expanded its business.
When 7-Eleven was first founded, they opened new stores under the rule of not leaving Koto Ward. Based on these rules, we focused on opening new stores in specific regions, and as our business got off the ground, we gradually expanded our stores nationwide. By doing so, we have now grown to become the convenience store with the largest number of stores in Japan, with 21,407 stores nationwide as of June 2023.
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of 7-Eleven domestic stores
Although 7-Eleven is the convenience store with the largest number of stores in Japan, it is actually the last of the three major chains, including FamilyMart and Lawson, to open stores in all prefectures. This is an episode that shows how 7-Eleven has developed its business by focusing on strategy.
APA Hotel
APA Hotels is Japan’s largest hotel chain, known for its reasonable room rates and stable quality. In 2021, we will have nearly 700 hotels across Japan. APA hotels are characterized by their dominant strategy targeting urban areas. We are developing our business with strategies tailored to location conditions and needs, such as “every major station exit” or “every subway station” within the same urban area.
Furthermore, in 2010, APA Hotels announced a medium-term five-year strategy called “SUMMIT 5,” and carried out intensive hotel construction mainly in the five wards of Tokyo, including Shibuya and Shinjuku. By increasing our share within the region, we have increased our brand power and established a strong position in that area.
In 2020, we announced a new mid-term five-year plan called “SUMMIT 5-III.” Our goal is to have a total of 150,000 guest rooms, and we are developing further with the aim of becoming the overwhelming No. 1 hotel with a 20% domestic share in the future.
starbucks coffee
Starbucks Coffee now has stores all over the world, but it started with a small store in Seattle and has utilized a dominant strategy within the city.
This strategy is also being used in Japan, where you can often see Starbucks coffee stores opening in nearby areas, such as in downtown areas. The area where this trend is most evident is Shinjuku, with a total of about 30 stores opening in that area alone. Therefore, even if one store is crowded, customers can think, “Let’s go to that Starbucks,” and can secure sales for the entire area.
summary
In this article, we provided an overview of the dominant strategy, its advantages and disadvantages, and points to consider when implementing it. Since store openings are concentrated in a limited area, this strategy is viable not only for major companies but also for small and medium-sized businesses. If you can make it a success, it will lead to big profits and become a store that is loved for a long time as an essential store in the area.
However, while there are many advantages, there are also disadvantages. It is important to thoroughly research and analyze the area, formulate a plan for business development, and approach it carefully.
After properly sorting out the size of your company and the characteristics of your products and services, you should develop an appropriate strategy.