Home Depot
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Home Depot’s Business Strategy
Home Depot 's target market is individual homeowners/small contractors. Even though the traditional ideology is that cost leadership and product differentiation business strategies are mutually exclusive, Home Depot was successful at using a combination strategy. First, Home Depot optimized the cost leadership strategy by offering low and competitive prices to its customers by emphasizing higher sales volumes with lower margins, while instituting a high inventory turnover. Home Depot successfully offered a warehouse product strategy to the individual consumer for the first time. Previously, this type of price discounting was only available to professional contractors who earned product price discounts due to large quantities of raw material purchases. Secondly, Home Depot utilized the product differentiation strategy by promoting quality products in its merchandise inventory, as well as, championing excellent customer sales assistance. The company boasted a 90% full time employee utilization, which allowed the company to properly train these employees in technical matters. Customers were able to buy products that were cheap, while under the guidance of knowledgeable Home Depot staff. This allowed Home Depot to employ both the cost leadership and product differentiation strategies. Home Depot will be able to maintain this combination strategy in the long run, since these two strategies do not complete with one another in normal business operations. Training employees will not cause product margins to increase dramatically. Since the company launched this dual business strategy at the onset of its business life cycle, the company has already factored in the cost of training/retaining quality employees in its product margins. Therefore, the company is fully prepared to absorb the cost of this employee quality, while maintaining low product prices to offer to its customers.
Home Depot – Key Ratios (1983-1985)
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Home Depot’s Business Strategy
Home Depot 's target market is individual homeowners/small contractors. Even though the traditional ideology is that cost leadership and product differentiation business strategies are mutually exclusive, Home Depot was successful at using a combination strategy. First, Home Depot optimized the cost leadership strategy by offering low and competitive prices to its customers by emphasizing higher sales volumes with lower margins, while instituting a high inventory turnover. Home Depot successfully offered a warehouse product strategy to the individual consumer for the first time. Previously, this type of price discounting was only available to professional contractors who earned product price discounts due to large quantities of raw material purchases. Secondly, Home Depot utilized the product differentiation strategy by promoting quality products in its merchandise inventory, as well as, championing excellent customer sales assistance. The company boasted a 90% full time employee utilization, which allowed the company to properly train these employees in technical matters. Customers were able to buy products that were cheap, while under the guidance of knowledgeable Home Depot staff. This allowed Home Depot to employ both the cost leadership and product differentiation strategies. Home Depot will be able to maintain this combination strategy in the long run, since these two strategies do not complete with one another in normal business operations. Training employees will not cause product margins to increase dramatically. Since the company launched this dual business strategy at the onset of its business life cycle, the company has already factored in the cost of training/retaining quality employees in its product margins. Therefore, the company is fully prepared to absorb the cost of this employee quality, while maintaining low product prices to offer to its customers.
Home Depot – Key Ratios (1983-1985)
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