Consumer perceptions of value in relation to products of Home Depot versus Lowe’s

TABLE OF CONTENTS

1. Introduction

2. Customer Value

3. Home Depot and Lowe’s customers perceived value
3.1 Home Depot and Lowe’s Background
3.1.1 Home Depot
3.1.2 Lowe’s
3.2 Home Improvement Market Key Success Factors
3.3 Positioning and differentiation
3.4 Value Creation Framework

4. Home Depot - Current Value Proposition
4.1 Value Chain
4.2 Value Net

5. Lowe’s Value proposition

6. Comparison Home Depot’s and Lowe’s Value Proposition
6.1 Home Depot’s and Lowe’s Core competences
6.2 Competitive Core Resource Comparison
6.3 Customer Value Map

7. Home Depot – New Value Proposition
7.1 Positioning strategy
7.3 Differentiation strategy

8. Conclusion

Reference List

1. Introduction

A clear customer value strategy is imperative for winning customer loyalty and forgaining a differentiated position in the competitive environment. Consequently, the company achieves a competitive advantage (which is based on the differentiated customer value strategy mentioned above) since the customer selects its products. According to Piercy (2009) a company should take into consideration the issues that a customer finds important as well as the comparisons that the customer makes with competitors’ products.

The present paper focuses on Lowe’s and Home Depot’s value propositions and provides suggestions on improving Home Depots’ value proposition. It examines the concepts and models such as the value creation framework and how this model is applied in the case of Home Depot. Then, it compares Home Depot’s and Lowe’s value propositions and finally it suggests a new value proposition and ways to implement it internally and externally.

Nowadays, the home improvement market faces many challenges such as the weak housing market (Lowe’s 2011). Customers spend less in re-modelling their houses, travel less and it is difficult for them to get home equity loans (Clothier 2007). Consequently, Home Depot and Lowe’s should offer a value proposition that adapts to these modern circumstances.

Issues such as the strategy of the companies and their positioning and differentiation, matter for understanding how consumers make their purchasing decisions. By making use of theories on customer value as well as how changes in positioning and differentiation under the present macroeconomic environment (recession, weak housing market) happen the aim is to understand how Home Depot is able to achieve a differentiated value proposition.

2. Customer Value

According to Piercy (2009), the new customer is attracted to products that have good quality or have low prices (Piercy 2009) however value drivers change over time and are different for different customers. For example, during times of economic recessions such as the current one, customers search for cheaper products whereas in times of economic prosperity, price becomes less important (Flint et al. 2010).

An affluent customer is more interested in quality and brand whereas a less affluent customer is interested in low prices. This fact constitutes a big challenge for companies since they have to track the different values of the different customer groups. Regular marketing researches enable companies to track these different values by examining consumer trends in product purchasing and consumer life style.

The change of value drivers overtime means that the companies should adapt their value propositions to changing needs of the consumers. Otherwise customers will turn into more attractive propositions, that better suit better to their needs.

When the customer finds a product/service that is higher than her/his expectations then it could be said that superior customer value is created since the customer is not only satisfied but delighted. A delighted customer is not only a loyal customer but becomes an actual “partner” of the company because she/he recommends the company’s products to other people (Barnes et al. 2009). Therefore, a deep understanding of customers’ needs (including perceptions and expectations) is required.

In many cases, when the product seems “expensive” to the customers, customer training is required to educate customers to search for the value of the product rather than the price. Customer training in FMCG is achieved through advertising and product tests whereas in B2B marketing customers are trained by using a trial version of the product (Best 2009).

In order to offer superior customer value, a company should look at what it does better (capabilities, skills and resources), examine and improve its organizational processes, the service abilities of its people and the processes of innovation (make customers feel delighted by finding new ways of satisfying customers) (Piercy 2009).

Company mission may be an important part of customer value, in fact; many customers may stop buying from a company whose mission displeases them (Piercy 2009). Companies such as the Body Shop use their company mission in their promotional campaigns as an advertising tool so people become informed about it.

In such cases, the company mission is related to the social responsibility position of the company, for example protecting the environment (company mission) by following environmentally friendly practices such as recyclable packaging (social responsibility position).Therefore, the company should consider its social responsibility position (since it affects the company’s mission) and the extent to which this position satisfies the customer. Consequently, a company’s social responsibility may become an important part of value proposition.

In certain cases, a company’s social responsibility may become the value proposition (Piercy 2009) since a large number of modern customers are interested in the treatment of employees, suppliers and environment by the companies. A typical example is The Body Shop where its value proposition consists of offering beauty products that respect the environment.

3. Home Depot and Lowe’s customers perceived value

3.1 Home Depot and Lowe’s Background

3.1.1 Home Depot

Home Depot was founded by Bernard Marcus and Arthur M. Blank in 1978 in Atlanta, Georgia. The vision of the founders was the provision of a large number of products delivered instantaneously to the customers at very low prices (Home Depot 2011). Today, Home Depot is the largest home improvement retailer owing approximately 1,500 stores. It offers 35,000 different kinds of garden products and building materials. Home Depot operates in 50 U.S. States, in Canada (eight Canadian provinces), Mexico and China (two sourcing offices) (Hattwick 2005).

3.1.2 Lowe’s

Lowe’s is the second largest home improvement retailer. It owes 875 stores in 45 states. Its goal is to open new stores at a rate of about 140 a year. Meanwhile, it follows Home Depot’s steps and plans to expand outside USA (Check Capital Management 2007).It offers a complete variety of home improvement equipment and products.

Lowe’s joined stock exchange in 1961. It is well known for its Corporate Social Responsibility with its programs Heroes and Home Safety Council which promote the idea of home safety and fire prevention.

3.2 Home Improvement Market Key Success Factors

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As it is seen in the table above, customers’ demands from the home improvement market are: one stop-shopping, low prices, convenient location and excellent customer service. These are the customers’ value drivers for the particular market and this is what the value proposition of a company should be based on. Therefore, home improvement market major companies offer wide product variety to facilitate one stop-shopping, economies of scale to have reduced costs and thus offer low price products and trained sales force to provide excellent customer service.

Home Depot in order to offer a successful value proposition needs to apply the above mentioned key success factors.

3.3 Positioning and differentiation

According to Porter (1987), competitive advantage can be achieved either by following a low cost (cost leadership) or differentiation strategy. Value in the cost leadership strategy can be achieved by mass production, standardization, design to reduce costs, expenditure control and avoidance of “marginal customers”. Value in the differentiation strategy is achieved by focusing on quality, innovation, design, reliability, image and brand, service and integrated services.

Porter (1987) believes that the company should add differentiation to its operational efficiency i.e. it should perform differently than its competitors.Porter (1987:52) suggests that “the process of perceiving new positions that woo customers from established positions or draw new customers into the market” is what the competition will pursue. This is what is actually done (taking new positions and draw new customers into the market) with Home Depot and Lowe’s as will be analyzed below.

Therefore, in order to attract new customers or increase the existing customer base, positioning can be variety-based, needs-based or access-based (Piercy 2009).

Variety-based is when the company offers specialized products or services. Needs-based is when the company addresses to a particular customer segment and access –based is when different customers are served in a different way. As it is seen in the analysis below, Lowe’s used needs – and access-based positioning since it has attracted women as a particular customer segment and it serves contractors differently from its regular customers.

However, the big question for a company is to achieve a sustainable competitive advantage. According to Porter (1987), this can be achieved only if the company only if the company activities needed to enhance its position fit with its existing competencies and when the competitor cannot imitate the company’s position. This is something that Lowe’s has to give serious thought since its value proposition can easily be imitated by Home Depot although the reason for its superiority is operational efficiency. An analysis of Home Depot’s and Lowe’s core competencies follows below.

3.4 Value Creation Framework

Murman et al (2003) identify the framework of value creation. This framework is divided into 3 phases - identifying the value, calculating the value and value proposition. The holistic model identifies the need to focus on the value of the customer from the early stages of product or service development through the provision and support of products and services during the life cycle.

This framework highlights the need for a systematic approach in order for a corporate to be able to identify and meet the expectations of various stakeholders. Each of the phases is distinct and the goals are summarized in the following table.

Table 1: VALUE PROCESS

(Source: Murman et al. 2003:120)

The phase of value identification includes the identification of all key stakeholders and value claims. The stage of value proposition involves the identification of stakeholders after understanding of what will be determined as added value for those stakeholders from the finished products / services. These stakeholders may include (but are not limited to) distributors, agents, contractors, employees, shareholders and partners as well as customers (Barnes et al. 2009). This stage can be complex and it is usually very difficult for shareholders to express the dimensions of added value before the value proposition.

A value proposition is essentially a statement of the tangible results that a customer can get from using the product or service from a company (Holbrook 1999). The process of creating value proposition can really help to identify the value for the various stakeholders and for the customer since it is required to search a priori (market research) what the stakeholders and the customer find valuable. This phase includes the development of understanding the sequence and the timing of actions (market research, timing of promotion, customer training etc.) needed to provide value to the customer. This phase will also include the effort to define value chains (in other words the processes that are necessary to produce a product/service valuable to the customer) and identify the added value within the value propositions of the various stakeholder groups (Eggert and Ulaga 2002). This can provide the added benefit to ensure the continued engagement through the phase of providing value: by identifying the view of the value added data, the various stakeholders are more likely to maintain their commitment to the project. In other words, when the various stakeholders see that what they consider as value is included in the production process of a product/service then they are more likely to support the project (Flint et al.2010).

Providing value is the final and most significant phase of the framework. It is associated with the procurement, production and delivery of the product or service to the customer or end user. The provision of service includes not only the value proposition to the customer or end user, but also to the various other stakeholders involved in the value chain (Sweeney and Soutar 2001). One of the main objectives of the value providing phase is to ensure that value is added at each step of the chain.

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