Business Analysis- Warby Parker
Introduction
According to the U.S Department of Commerce, retail industry is usually considered one of the most profitable industries in the world. Within the United States, the retail business accounts for about 12% of all the businesses taking place at any given time. Warby Parker is a United States online retailer dealing with eyeglasses. The company is unique in that it offers its own line of professional glasses and sunglasses direct to its customers. Warby Parker found the opportunity to do business in that people with poor vision will always need glasses. Therefore, the company is a fashion brand with keen focus on low priced quality glasses.
Industry Context-Porter Five Analysis
New Entrants: Online retailing has attracted majority of new entrants due to the simplicity and the low initial capital involved. When you check the internet, many people are setting up online retailing businesses at a first rate. Even the traditional retailers are also opening their businesses to the online retail. The barriers of starting online business are easy to overcome and low capital is required (Dobbs 39). Small organizations and individuals can easily compete on the internet retail on the basis of convenience, location, low cost among other factors. With good online marketing, a new retailer can easily become a brand and compete with established brands like Amazon. Therefore, the overall threat of new entrants in the online retail business is high and it is increasing.
Substitutes: Most online retailers tend to focus on different types of products to attain a wider customer base. Therefore, the products being offered by one business is likely to be offered by other businesses. The ability of the retailer to offer unique products would give them a competitive advantage (Anders 73). The substitutes are not readily available and the cost of producing such substitutes of often high. Therefore, there is a low threat of substitutes that affects the businesses in the online retail segment. The threat of the substitutes will increase with time.
Suppliers: In most cases, retailers attempts to exploit their relationship with their suppliers as part of their profit maximization strategy. Due to the big size and the concentration of most retailers, the bargaining power of the suppliers is low. The differentiated products of products also reduce the bargaining power of most retailers (Bell, Jeoghhye, & Leonard, 29). The products sold on the online retail stores are readily available, making the suppliers to have a weak bargaining power. Generally, there are very many suppliers who do business with the online retail and this brings down their competitive rivalry. Due to their large numbers, there is increased competition among the suppliers and this reduces their overall bargaining power to the online retailers.
Buyers: When it comes to online retailing, the buyers tend to have little bargaining power since it is difficult to start bargaining with the clerks at the online platforms. Therefore, most customers buy goods and services are they are being sold with little bargaining possibility. Increased demand for online products also lowers the bargaining power of their customers. Furthermore, these customers come from diverse backgrounds that make them to have a weak force of the industry. Furthermore, most online retailers offer high quality products, leaving the buyers with less option other than to buy their products. The online retail business is a global business with customers in all the corners of the globe (Dobbs, 33). In this regard, the large population of buyers makes it difficult to impose significant pressure on the online retail firms. Therefore, the overall bargaining power of the buyers is low within the online retail industry.
Rivalry: The competitive rivalry in the online retail is mainly caused by large and established businesses such as Amazon. When such big online retailers tend to push their market share, they cause increased competitive rivalry. Increased competitive rivalry among the online retailers is also caused by the tendency of the small retailers to enter into mergers and acquisition in their attempts to control the market share of their products and services. Generally, there are several companies operating within the online retail segment that brings increased competitive rivalry. Furthermore, there is high aggressiveness of the online retail firms and this increases the competitive rivalry within the industry. Therefore, the overall competitive rivalry within the online retail segment is strong.
Overall: Online retaining is one of the most lucrative businesses in the world. In this industry, the threat of new entrants is high due to convenience, simplicity, and the low capital required. The threat of new substitutes is generally low due to numerous products offered by the online retailers. Also, the suppliers have low bargaining power due to their high numbers and the ready availability of the retail products. The high number of the buyers also reduces their bargaining power. The high competitive rivalry in the online retail business is mainly caused by the established brands as they exert pressure to increase their market share.
Positioning: The strategy adopted by the company is the low priced positioning strategy. The company has devised a smart marketing strategy for the pricing of their glasses such that two pair of their glasses goes for $95. The company has the strategy in that customers are given two eyeglasses. Therefore, the company plays with the consumer psychology in that they would believe that one pair of the eye glasses costs about $45. Initially, the management thought of pricing at $45 but realized that the quality of their products would be questions by the customers who believe that high quality is expensive. By giving their customers one extra pair of glasses, the customers feel happy since they don’t need to buy another pair when their initial glasses get damaged. On the other hand, the company creates a platform such that they extra pair can be donated to other people who are in need of such glasses. Therefore, the pricing strategy at Warby Parker is also another form of Corporate Social Responsibility (CSR) that is aimed at helping the people who cannot afford descent eyeglasses. The average price of the consumer eyeglasses cost $263 according to the National Association of Vision Care Plans. In their pricing model, Warby Parker uses uniform pricing system to offer some form of relief to their customers. By this strategy, the customers can easily focus on other forms of glasses within their store without the worry to pay more. In this regard, the customers have the freedoms to choose the products that reflect their personality and unique requirements. With this pricing strategy, the company created the impression that their price was reasonable and not low end.
Value Chain: Value chain system provides the means by which value is added to various raw materials to provide superior products to the customers. The value chain at Warby Parker is represented by the diagram shown below.
Porter Value Chain
The value chain of Warby Parker consists of the primary activities and the secondary activities. At Warby Parker, the company invests heavily in infrastructure such that proper planning and financing ok key activities is successful. Recently, the company acquired $100 million from the financial institutions to help support their expansion strategy and to compete with established brands such as Luxotica (Business Insyder 1). The other value chain activity at Warby Parker is related to Human Resources. The company ensures that they attract the best talents and provides them with constant training to help them pursue the company objectives.
The other value chain activity at Warby Parker involves the use of technology to promote the design and quality of their products. The eyeglasses sold by Warby Parker are properly designed to meet the unique needs of the customers in different places. The technology applied by Warby Parker also has supports their advanced infrastructure operations.
Resource: The VRIO analysis helps to explain how the resources and the capabilities help the business to attain a competitive advantage. The following is the VRIO analysis of Warby Parker.
Warby Parker engages in corporate social responsibilities through their extra eyeglasses that are given to all their customers. The company is aware that more than 15% of the people need eye glasses to increase their productivity. This CSR initiative is valuable in that people develop emotional attachment to the company and this increasing their brand loyalty. On the other hand, it is rare to have retailers engage in such unique CSR activity and this increases the brand visibility of the company (Kramer 1). The unique approach of Warby Parker CSR is non-substitutable and this gives them little competition with other industry players.
Finally, Warby Parker offers outstanding quality products to its customers. The ability of the company to offer quality products is unique resource in that most customers appreciate such products. In rare cases do companies offer high quality products that meet the expectations of their customers and at friendly prices. This gives Warby Parker a competitive advantage that helps them to increase their sales. With such high quality products, the company is in better position to beat their rival Luxotica who control the market share (Business Insyder 1). In most cases, the businesses that offer high quality product sell them at expensive prices. The company strategically decided to offer the high quality eyeglasses to exploit the ever increasing demand for quality optic products.
Work Cited
Anders, Susan B. "Website of the Month: Fast Company." The CPA Journal 84.8 (2014): 72-3. ProQuest. 28 Jan. 2016
Bell, David R., Jeonghye Choi, and Leonard Lodish. "What Matters most in Internet Retailing." MIT Sloan Management Review 54.1 (2012): 27-33. ProQuest. 28 Jan. 2016
Business Insider. Warby-Parker-takes-on-the-Luxotica-monoply. Web http://www.businessinsider.com/warby-parker-takes-on-the-luxotica-monoply-2015-10
Chafkin, Max. "For Building the First Great Made-On-The-Internet Brand. Fast Company, March 2015, For Building the First Great Made on the Internet Brand - Warby Parker.pdf
Dobbs, Mark. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(2014), 32-45.
Kramer, Katie. Why-Warby-Parker-is-banking-on-brick-and-mortar. CNBC. Web> http://www.cnbc.com/2015/05/14/why-warby-parker-is-banking-on-brick-and-mortar.html
U.S. Department of Commerce. The Retail Services Industry in the United States. 2015
