Abstract
This case study seeks to highlight the operations of 7-Eleven, the world’s leading retail convenience store chain with the aim to understand its business model on which its promotional strategy is based. The research and review of literature revealed that 7-Eleven has a promotion strategy based on value creation and product differentiation. Since its establishment, the company has undergone a tremendous change which has seen it evolve from a traditional convenience store to a multi-billion dollar convenience chain with a majority of its operations on foreign shores. It intends to utilize the same values to promote its existing as well as new outlets and support its business expansion plans.
1 Introduction
Owned by Seven and I Holdings Co. Ltd. Japan , 7-Eleven is the world’s largest convenience store chain in terms of licenses and franchises, with about 48,000 stores worldwide . As of 2012, the chain had 9,460 stores in the US and the rest located globally, with only 477 stores being owned by the company and the rest being franchises . Although the stores first offered services from 7am to 11pm only, the outlets are now open 24 hours a day, 7 days a week. The unique selling point or USP of 7-Eleven is empowering consumers to shop at any time of the day convenient to them and choose from over 2,500 products .
Known for being the pioneer of convenience stores, 7-Eleven has greatly diversified and now offers much more than just groceries. The company has been increasingly focusing on providing fresh foods and company owned fast food brands such as Big Gulp beverages, Big Bite hot dogs and Slurpee in addition to fresh bakery products that account for nearly 40% of all 7-Eleven sales . In the US, the chain was mainly popular in the state of Texas and in the suburbs of other states. However, it has recently embarked on an expansion plan with aims to rapidly open stores in key cities such as New York .
With a highly globalized supply chain network and operations spanning continents, 7-Eleven and its product cycle face several unique challenges on the path to expansion and diversification of the business. With a focus on extending its food offerings and, at the same time, reaching new geographies within the US as well as globally, understanding each target consumer base’s demands, needs and tastes is an imperative to the success of its campaigns.
2 Product Life Cycle
Every product undergoes a cyclic process wherein it is first created and launched, followed by the subsequent phases of consumer awareness and adoption, and the peak demand and supply of the product. Once the sales of a product have peaked, the next phase depends on the strategy a company follows towards the continuation of the supply of the product. As consumer demand and purchase behaviour changes, the product eventually becomes obsolete. The company can then, either discontinue the product or rely on innovation to change it to meet consumer needs.
Retail products undergo such life cycles too. The UK retail market is saturated, with very little and slow growth and, hence, competition among retailers is fierce. 7-Eleven has the advantage of operating majorly on a global level and can leverage the growing demand for convenience stores to cover projected overall growth. Never the less, in order to succeed in capturing new markets, 7-Eleven needs to fully understand its product life cycle. Considering the vast range of products on offer at its stores, managers need to keep in mind various factors such as seasonal demands, monthly demand cycles, cultural influences, and local trends that will impact the life cycle of each product line.
For example, foods that are demanded during summer, such as Slurpee and Big Gulp, will be replaced by the demand for warm drinks such as coffee. Moisturizing creams with sun blocks will be replaced by products offering intensive moisturizing, summer clothes will give way to woollens, and the demand for air coolers will fall and that of heaters will increase. While the cycle of such products is more predictable, products that are part of short term ‘fads’ will typically have shorter life spans.
Through the utilization of product life cycle analysing tools, managers will be better equipped to: a) forecast high revenue periods and maximize profitability of select product lines, b) organize the stocking of products in accordance to demand cycles that will make for lesser time on shelf as well as better cash flow, and c) plan promotional campaigns and rewards programs in time with rising demand phases. By observing the life cycles of their products, 7-Eleven will be able to identify revenue maximization and cost efficiency opportunities unique to the geographies that their stores operate in.
3 Promotion
The process of promotion rests on the provision of relevant information to prospective clients with the aim of converting leads into sales. 7-Eleven focuses its promotional activities around value creation and differentiation , understanding that ‘convenience’ has always played a pivotal role in drawing a regular consumer base to its business. The company has developed a business model that is aimed to serve this purpose of adding value to its products and services. 7-Eleven has based its business model on five main characteristics, namely: a) convenience based shopping experience, b) differentiation through merchandizing, c) one of a kind franchise strategy, d) reliance on the company’s retail information system, and e) organized distribution .
- Convenient shopping: In addition to its trademark around the clock shopping facility, 7-Eleven has always ensured that its products and services are in step with constantly changing consumer trends. The chain expanded its product offerings from pure grocery at its initiation to offering a vast array of products and services including food items including fresh foods, money orders, newspapers and magazines, gasoline, tobacco products, electronics, stationery, personal grooming and beauty products, fashion clothing and accessories, hygiene products, postage services and prepaid cards for cell phones. The interiors and exteriors of the stores, that typically have an area between 2,400 to 3,000 sq. feet, are regularly renovated to provide a modern shopping environment.
- Merchandizing: 7-Eleven differentiates itself from other convenience stores by offering a range of merchandized products that such stores traditionally do not offer. The most popular of these are its fresh food and bakery items that are replenished at the stores every 12 hours or lesser. There are also its trademarked products such as Slurpee, Big Gulp, Big Bite and Café select. The company promotes merchandized products that either have a history of high demand or which hold high sales potential. Fast selling products are regularly stocked in order to maintain supply.
- Franchising: A vast majority of 7-Eleven stores are run by franchisees. The company differentiates its franchise models from others by providing franchised outlets with equipment and leases for stores as well as designing of stores. This ensures that 7-Eleven stores across the globe have a standardized shopping environment and service quality. The company also provides support to franchisees with financing, advertising, business guidance, accounting and promoting.
- Retail Information System: The company was the pioneer convenience store in the US to utilize an automated, integrated retail Information System that featured: i) a centralized, touch screen PoS system with combined scanning, debit, credit and value card verification , ii) near real-time reporting with five day weather forecasts, iii) sales and stocks report correlation, iv) automated gasoline pricing, inventory and accounting system, and v) instant writing off and adjusting of deliveries from a hand held device.
- Distribution: 7-Eleven has a complex yet well managed distribution and supply chain system that allows it to: i) manage stocking of perishable and fast moving products such as fresh foods, ii) undertake stocking and deliveries during off peak hours to avoid congestion and better utilization of employee work hours, iii) optimized stocks, iv) availability of products unconventional at convenience stores.
4 Expansion Plans
7-Eleven plans to boost same store sales by leveraging its retail information system, franchisees, merchandizing department and store in-charges, all work together to identify the consumer demand at each store in order to optimize the stocking of in demand and high potential demand products that will appeal to the consumers visiting each individual store. As part of its Retailer Initiative Strategy, the company allows each store manager to provide in-puts based on local tastes to manage product selection and supply.
The company has a two-pronged geographical expansion plan. It seeks to open new stores in suburban as well as specific urban areas such as New York City, it is focusing the development of new stores around existing distribution centres and supplier networks to maintain ease of stocking and product delivery. At the same time, it is seeking to enter new markets in developing countries such as India and China as well as capitalize on growing demand in developed countries in Europe. It is mainly relying on franchisees in these large markets by offering attractive financial packages to potential licensees.
5 Conclusion
At a time when convenience stores are facing a mature retail market with fierce competition, 7-Eleven has used value creation and differentiation to not only survive even the most testing market conditions such as the economic recession of 2009, but has also thrived in existing as well as new markets. It has constantly evolved to meet the growing demands of its consumer base, taking the concept of convenience shopping to the next level through the introduction of a diverse product range, round the clock open stores, automated retail systems to manage its operations and optimal utilization of its franchisee network to reach untapped markets at minimal costs.
In the coming years, 7-Eleven seeks to further expand its operations by promoting its businesses in current locations as well as geographies where it does not yet have a presence. Through the further development of its strengths, and leveraging its Retailer Initiative Strategy, 7-Eleven increase same store sales as well as develop a regular, loyal consumer base at newly opened outlets by delivering and promoting customized product lines.
Questions
- What do you understand by the term ‘product life cycle’? Illustrate your answer using an example of a fashion item that you have bought.
- How is knowledge of the product life cycle useful to managers in planning the lainch and ongoing support for new products?
- Using the 7-Eleven website, analyse the types of approaches that might be adopted when promoting a clothing range online.
- What considerations should 7-Eleven take into account when deciding whether to spend more on promoting particular products? Refer to the Boston Matrix when answering this question.
Works Cited
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Thompson, S. R. (2012, January 30). 7-Eleven highlights new food at Dallas exhibit. Retrieved from Dallas Business Journal: http://www.bizjournals.com/dallas/blog/2012/01/7-eleven-highlights-new-food-at-dallas.html?page=all
