Professional Documents
Culture Documents
Good File On Game Theory Application ASDA and UK's Market But 2015
Good File On Game Theory Application ASDA and UK's Market But 2015
net/publication/282249718
CITATIONS READS
0 11,536
1 author:
SEE PROFILE
All content following this page was uploaded by Rodrigo Héctor de Luis García on 28 September 2015.
This report is written as if it was for ASDA, the UK supermarket. Because this report is part of the course
work for the MSc. course EPA1143 Actors and Strategy Models the report is written a bit more academic
then a true advisory report would’ve been.
The information in this report is based on internet sources and some course books. It was beyond the scope
of this report to interview employees, etc.
We would like to thank our supervisor Mr. Hermans for his help and involvement during our project. Also
we would like to thank Mr. de Reuver for his help concerning the issues and questions we encountered with
respect to the Social Network Analysis and Mr. Cunningham for his help regarding the application of the
Game Theory method.
2
Table of Contents
TABLE OF CONTENTS ............................................................................................................................ 3
1. INTRODUCTION ............................................................................................................................. 5
1.1 ASDA’S STAGNATING MARKET SHARE ................................................................................................... 5
1.2 GOAL OF REPORT ............................................................................................................................. 5
1.3 METHODOLOGY AND STRUCTURE ......................................................................................................... 6
REFERENCES....................................................................................................................................... 35
APPENDIX E. REMOVING THE INFEASIBLE SCENARIOS FROM ALL THE POSSIBLE COMBINATIONS....... 47
4
1. Introduction
In this section ASDA’s problem of a stagnating market share is made explicit and the goal of this report is
elucidated together with the methodology used.
5
“If a firm is able to concentrate its expense over the capabilities that make a real
difference in terms of winning the market, it is not only able to cut costs but also to invest
in areas of business that will cause them to thrive and to grow”
A successful strategy or policy for ASDA to gain their desired market share will be composed of two parts.
First of all, an area or business aspect has to be identified where ASDA can target a strategy on to develop
or improve itself and become more attractive to consumers in order to increase its revenue (and thus its
market share). Secondly, the financials have to be made available to implement these strategies
successfully. For ASDA, a strategy can thus be viewed as the relocation of financial resources.
The underlying stakeholder analysis is presented first in section 2. Then in section 3 and 4 the different
strategies for cost cutting and business opportunities are presented respectively. Section 5 will then show
the results using a social network analysis. Subsequently, in section 6, the three methods will be compared.
The characteristics and differences among the methods are compared with each other. Section 7 concludes
the report and will summarize the results obtained and provides recommendations for ASDA.
6
2. Identification of stakeholders
As with most multi-actor problems a stakeholder analysis provides a good overview of the stakeholders in
the problem arena and forms a good first approach to understanding the multi-actor network a problem is
occurring in. A stakeholder analysis is thus also part of this report and can be found in Appendix B. The main
findings are summarized in Table 1.
The conflict and dilemma in ASDA’s problem are evident again: all supermarkets aim to increase their
market shares, which is impossible. Note that the stakeholder analysis provides no information about
possible interactions between the actors and consequences thereof, the stakeholder analysis provides a
snapshot of the situation. For the dynamic interactions so-called actor analyses and strategy models
described in the methodology
can be used.
In Figure 3 a power/interest
grid of the stakeholders in the
problem arena is displayed. It
displays what actors ASDA
should be more aware of than
others because they have more
power and are more likely to
act when disadvantaged. The
critical actors usually hold
important resources and are
likely to act when their
interests are harmed (further
elucidated in Appendix B).
7
3. Selection of cost-cutting strategy
A successful business strategy for ASDA is about cutting costs in one place and relocating the new available
resources to business aspects where they can be leveraged better, as explained in the introduction. This
section is about identifying and exploring cost cutting strategies ASDA can adopt.
Wages and
operational
19%
6% Other
75%
Purchase
The main supermarket chains in the UK act as a link between more than 7000 suppliers and around 25
million consumers, as we can see in Figure 4. The four biggest supermarkets combined control more that
88% of the food market share. This power means that also ASDA has a strong control over the supply chain
of consumable and non-consumable products in the country. This power is the basis for the first identified
strategy to cut-costs. ASDA should use this power to push suppliers’ margins (Nicholson, 2012).
Wages also form a significant part of ASDA’s costs. Given the fact that ASDA has relatively high wages at the
moment (Appendix C), cutting these wages would be another evident strategy to cut the costs.
This report thus focusses on one strategy to cut the selling, operating and administrative expenses; the
cutting of costs on wages, and on one strategy to cut the costs of the goods sold; reducing the prices ASDA
pays to the suppliers by putting more pressure on them.
8
growth), taking into consideration the different interests that stakeholders have over this issue, and the
conflicts that might arise with its actions?”.
To answer this question and study the conflicts among stakeholders triggered with possible strategies of
cost cutting, the Conflict Analysis Method will be applied. It helps to structure the key actors in this conflict,
their main interests and preferences, and the actions they have to exert control over the problem and
situation (Hermans & Thissen, 2009).
9
3.4 Application of Conflict Analysis
In this section the Conflict Analysis method is applied to the case.
10
11
The assumptions made to select a proper set of actions and the relations of dependency between them for
the issue “Reducing suppliers’ margins” can be seen below:
ASDA
It is assumed that ASDA only has one option to meet its objective, which is reducing its suppliers’ margins.
Otherwise it does nothing. Since the objective is only to study the impact of reducing its suppliers’ margins,
the simplicity of the analysis is a guideline.
Main Competitors
Again, having the simplicity of the analysis as a guideline, it is chosen that the main competitors can only
copy/take initiative of a reducing suppliers’ margins strategy. Otherwise they do nothing.
Competition and Markets Authority
The aim of the Competition and Markets Authority is to assure that markets work well for the consumers,
businesses and economy (Gov.uk, 2014), and so, if both ASDA and Main Competitors choose to reduce their
suppliers’ margins at the same time, it will appear as if both had cooperated to not give suppliers any
chance. It can then act and suppress supermarkets’ activates since this is considered unfair competition,
and it is illegal. Otherwise, if it is not able to prove the unfair competition, or only ASDA or its main
competitors reduce their suppliers’ margins, it does nothing.
ASDA’s Suppliers
When forced to reduce their margins over the products sold, it is assumed that ASDA’s suppliers can react
in two ways. They can accept the new directives and do whatever they can to maintain a good relation with
ASDA, or they can end the contract and try to change their business partner, not fulfilling the new directives
and starting a new business relationship with one of ASDA’s main competitors. However, they only change
their business partner if the profits they can have with them are bigger than with ASDA, that is, if the main
competitors don’t reduce their suppliers’ margins. If ASDA does nothing or the Competition and Markets
Authority suppresses supermarkets actions, then ASDA’s suppliers don’t have to do anything too.
The assumptions made to select a proper set of actions and the relations of dependency between them for
the issue “Reducing wages cost” can be seen below:
ASDA
ASDA’s aim is to reduce costs with its employees. It can achieve that by reducing their salaries or by
dismissing a determined amount of workers. Otherwise, it does nothing. These are the only three actions
considered possible for ASDA, in order to simplify the analysis.
Main Competitors
Again, having the simplicity of the analysis as a guideline, it is chosen that the main competitors can only
copy/take initiative of a reducing wages cost strategy. Otherwise they do nothing.
Employees’ Coalition
Employees can protest against the reduction of their salaries and against the dismission of their fellow co-
workers by reducing their productivity or by engaging in a strike. These are the actions assumed to be in
employees’ power to protest. Otherwise, if ASDA does nothing, employees do nothing too.
The simplicity of the analysis is a guideline, and so the set of actions for these issues is kept simple.
Nevertheless, these actions are the critical ones to fully comprehend the consequences of ASDA’s
behaviours.
12
13
In these tables, the number “1” means that the action is taken and the number “2” means that the action
is not taken. Do nothing is also an option. It is also very important to take into consideration that each
stakeholders’ action excludes the rest of its choices. The tables are also divided in groups, each group
representing one of ADAS’s possible actions.
For the first issue “Reducing suppliers’ margins”, ASDA prefers that its competitors do nothing, so it can gain
some competitive advantage over them. It also prefers that their suppliers accept the new terms without
protesting. For the issue “Reducing wages cost”, ASDA prefers that its competitors do nothing, so it can
have a momentary advantage over them, in terms of available resources. It also prefers that its employees
understand its position and do not engage in any type of protest. For a more complete overview over all
preferences, look at Appendix G.
14
From the analysis of these tables it is
possible to see that the aggregated
preference of the system is highest in S1
for the issue “Reducing Suppliers’
Margins” and in S5 for the issue
“Reducing Wages Cost”, while for ASDA
it is highest in S3 for the issue “Reducing
Suppliers’ Margins” and in S3 and S9 for
the issue “Reducing Wages Cost”.
Based on the preferences of each
stakeholder and on the unilateral
improvements that they can do to
improve their position without the
cooperation of other stakeholders, it is
possible to depict a strategic map for
each issue, as you can see in Figures 8
and 9.
15
From the analysis of these maps it is possible to identify quicker the stable scenarios, that is, the scenarios
that can occur more easily without any cooperation between the actors. For the Issue “Reducing Suppliers’
Margins” it is S4 and for the issue “Reducing Wages Cost” it is S2. Next, there are the interpretations for
both issues.
16
optimum outcome ASDA could get in this issue (6), but again, achieving it without cooperation will be
extremely difficult for ASDA.
17
4. Assessing business strategies of growth
A successful business strategy for ASDA is about cutting costs in one place and relocating the newly available
resources to business aspects where they can be leveraged better. This section is about identifying and
assessing those potential strategies so that it allows ASDA to increase their market share.
18
4.3 Game Theory method
Game theory makes use of mathematical models of conflict between rational decision makers (Myerson,
1991). This implies that each player involved in the `game` will try to determine the optimum action that it
can take whatever the rest of the other players chooses to implement.
Game theory is available for different situations, categorised as
cooperative or non-cooperative (referring to the cooperation
between the actors) and simultaneous or sequential (referring to
decision-making).
A game theory model makes use of several elements, of which
the most important are considered: players, actions, payoffs and
rules or information. All these elements together are referred to
as the “rules of the game”. Players will attempt to find the best
way that will help them maximize their payoffs, which is known
as a strategy. The combination of strategies chosen by each actor
that is known as the equilibrium scenario helps the modeller to
find the optimum outcome of the game (Myerson, 1991).
The final outcome is based on two concepts: the dominant
strategy, which is the optimum solution and the “Nash
equilibrium”. The latter concept is a solution concept, which
implies that no player involved in the game has incentive to deviate from his strategy given that the other
players will not deviate too. The methodology used can be seen in Figure 11.
19
are very unpredictable and this study was more interested in the reactions the other stakeholders could
adopt in reaction to ASDA’s strategies (also seem Appendix B).
Action Description
This action intends to represent a set of strategies in which ASDA targets new
Increase diversity
retailing markets (electronics, consumer products, …)
Increasing the quality of their edible products might attract more consumers to
Increase quality
their retailing stores.
Reducing the price of their products might improve their public image and
Reduce price
attract more consumers.
20
4.4.3 Payoffs
The payoffs in the game theory model refer to the utility that each player would receive in a specific
outcome of the game (Schelling, 2010). In the developed game model the calculations regarding the market
share or benefits that each of the food retailers could earn for every scenario have been avoided; given the
uncertainty and complexity of these factors it would not contribute to the usefulness of the analysis. It is
still possible to quantify numeric outcomes for every player in every scenario of the game model though.
To do so, five different fields of interest for the players have been considered in the computation of the
payoffs. These are: resources, benefits, public image, risk and completeness. These factors have been
evaluated on an ordinal scale (-3 to 3). For more information about the quantification of the payoffs please
be referred to Appendix H. The payoffs and their computations assigned to every scenario are elucidated in
Appendix I were also the possible scenarios of the game are shown.
21
Figure 13 - Overview of the game model in its extensive form. ASDA (blue), Tesco (red), Sainbury's & Morrisons coalition
(orange), Low cost supermarkets coalition (green) and Government (black).
22
Sainsbury’s would try to reduce their prices, given that they target a different kind of costumer. Regarding
to Tesco’s reaction, it is not likely that it will try to reduce its prices (targeting a new kind of costumer) while
it is expanding the brand abroad. Regarding to the regulations that the government could make, it is
expected that if all the main supermarkets reduced their prices, the government would probably regulate
the low prices, resulting in huge losses for all the supermarkets.
Finally, a very interesting outcome offered by the game model was related to the fact that even if Tesco
tried in the beginning to implement a counter strategy to ASDA’s possible actions, it is very unlikely that
Tesco would try to hold their fight for the market share with ASDA in the UK, rather than keep focusing its
resources in the expansion their currently facing.
23
5. Effects of strategy on ASDA’s social network
This section provides insight into the effects of the strategy of cutting costs and increasing product diversity.
24
5.3 Application of Social Network Analysis
First a decision has to be made for the definition of the links in the social network. Because ASDA is looking
for a business strategy the links were chosen to represent business-to-business (B2B) relations between the
actors, all interactions involving the exchange of money or goods. In the data file that was used to construct
the social network different strengths of the links were specified. A relatively strong link between ASDA and
an actor indicates that ASDA does relatively much business with the actor.
Subsequently the selection of the actors to be included in the social network has to be determined. Including
all the actors in the UK supermarket industry with links to ASDA would probably make the resulting web of
connections too big and lack clarity. Gathering reliable information about all these actors was difficult
though. As interviews were beyond the scope of this report the identification of the actors was mostly based
on newspaper articles and official documents from ASDA. Despite of the limited number of good quality
sources over 30 suppliers could be identified. Fortunately it is not necessary to include all actors and
relations for the purpose of this report. A smaller network can be used, with only the most relevant actors
and some grouped actors. The included actors are summarized in table 14.
25
Figure 14 – Social network of ASDA.
The circle sizes in the model represent the actors' degree of centrality. The bigger the circle means the actor
is connected to more other actors. It is clear that ASDA has the most connections, represented by its circle
size, which is the biggest.
Some interesting characteristics of the network are presented in table 15.
The following observations and corresponding interpretations can be made from the general social
network:
ASDA has the greatest degree, betweennes and density compared with the other actor. It is because
ASDA is connected to most actors and also play important role connecting several groups of actor.
For example, it connects the suppliers to the customers. Therefore, ASDA is the most influential actor
in the network.
ASDA is directly connected to three big wholesalers and on aggregated wholesaler. Via these
wholesalers ASDA is connected to the product brands under the wholesalers’ management. It can
e.g. be seen that the wholesalers have a crucial position in the indirect connection of ASDA to these
smaller brands. ASDA is thus very vulnerable to losing a connection to one of the wholesalers as it
26
would imply the loss of the indirect connection to the smaller brands. Obviously specific brands will
attract certain customers, so ‘losing’ these brands will probably have implications for ASDA.
There are two unions in the model, the consumer and supplier union that are both acting as a broker
between the interests of the consumer and suppliers respectively and ASDA. Through i.a. collective
labour agreements and trade deals ASDA is linked to these unions.
The following observations and corresponding interpretations can be made from the general social
network:
If ASDA were to put more pressure the Social Network in Figure 5 shows that ASDA has to be careful
not to break the ties to certain actors (i.e. Diageo, Unilever, Mondelez International, and the
Aggregated wholesaler), as they are the brokers to several suppliers under the big company's
management. This might lead to ASDA losing some group of customers that interested in some
specific brand of products.
27
Figure 16 - The resulting Social Network if ASDA would implement the “Increase product diversity”.
The following observations and corresponding interpretations can be made from the social network:
The “Increasing product diversity” strategy can be visualized in figure 16 by determining the new
strengths of the ties connecting ASDA to the consumers and suppliers. The green lines indicate that
the strength of connections will increase and the red lines indicate that the strengths of the
connections will decrease. ASDA will thus gain a stronger connection with lower and middle class
customer but the connection with upper class customer will be weaker. This is based on the
assumption that the lower and middle class people react positively to a bigger offer of products
whereas for upper class people it might have the opposite effect (Iyengar & Lepper, 2000).
Though not visible from the graph, research into the effects of the strategy on the links with the
customers showed that if the range of products offered gets too big this will deter all types of
customers (Iyengar & Lepper, 2000). ASDA thus has to be aware of this needed balance and keep this
pitfall into mind when potentially applying this strategy.
By putting pressure on the suppliers ASDA risks the relation with these suppliers. In case the suppliers decide
to stop working with ASDA, ASDA would lose the connection to certain products through the supplier. The
customers who are looking for those products would then go to another supermarket. Only if ASDA can
make a good deal with the supplier, and the connection will survive, the strategy can thus be applied.
28
With the product diversity increase strategy, the relation with upper-class customers could be weakened.
It is because they only go for some specific products. If the choice becomes broader they would find another
supermarket. However, ASDA can gain stronger relations with lower and middle class customers and some
supplier of the specified products since they prefer to go to supermarket with broader product choices and
prices. Overall, this strategy would be beneficial if ASDA were to apply it.
Some other interesting characteristics of ASDA’s Network also have been explored. It was found that the
ASDA has the most power in its social network. However, it is still dependent to certain actors in the
network. And if ASDA broke one link in the network, the effect will be multiplied, since ASDA also plays a
role as broker between customers and the products. If actors on the other side cannot find what they want,
they would go away from this network and ASDA might suffer a loss in market share.
29
6. Reflection on methodology: methods and outcomes
Three actor and strategy models were used in this report; conflict analysis, non-cooperative game theory,
and social network analysis. This section will reflect on and compare these methods.
30
Ease of use: GT can relatively easily handle many actors. In ASDA’s case five actors were used which was
manageable although the game tree already got quite large which makes it more difficult to visualize the
method. Computer programs can fortunately be used to determine the equilibria of the process so a large
amount of actors is not of influence.
Required
Method Purpose Structure Assumptions
information
Assess stability of Policy game to identify Actors with different Actors’ options
outcomes based stable outcomes of options to exert and ordinal
Conflict
on preference strategies, based on the control over and preference.
Analysis
ranking. ranking of preferences preference to certain
of the actors. outcomes.
Determine Quantitatvely evaluating Actors with rational Actors’ options
equilibrium strategic decision- behavior for which and the
Game
outcomes making of all actors to the interests can be corresponding
Theory
mathematically. identify potential approximated. payoffs.
outcomes/scenarios.
31
6.3 Comparison of outcomes
The three actor and strategy methods used all have different outcomes. Between CA and GT the outcomes
were both equilibrium strategies and scenarios for the cost-reduction problem and resource allocation
problem respectively. Both methods also provided insight into the process of reaching this equilibrium
which can also be very useful to ASDA in future situations.
The results from the SNA were mainly insights in ASDA’s network. This insight can be used in the decision-
making to determine whether or not to apply the strategies and what precaution ASDA take.
32
7. Conclusion and recommendations
This chapter evaluates the contributions and conclusions that could be drawn from this report. Also the
final recommendations for ASDA are presented.
33
is not a viable strategy yet as it needs to be explored further, especially regarding the effects the strategy
can have on the relation that ASDA has with its employees. The uncertainty about this conclusion is mostly
in the preference ranking as this formed the basis for identifying this conclusion (through the conflict
analysis method). Further research into the preference ranking is thus recommended.
ASDA’s social network did show that putting pressure on the suppliers could have potentially big
consequences if pushed too far as important connections to bridging actors could get broken. It is therefore
recommended to ASDA to keep monitoring the relations with the suppliers to determine how far they can
be pushed.
With respect to the strategy of growth it can be concluded that the dominant strategy is the scenario in
which ASDA increases its product diversity and its competitors do not. Taking into account the actions of all
other actors, this would thus be the best strategy for ASDA if a decision was to be made now. The
uncertainty in this conclusion is in the payoff function (used in the game theory) and further investigating
thereof is recommended.
The social network visualized the shift of customer base that an increased product diversity would result in,
which is mostly towards the middle class customers.
34
References
Banerji, S. et al., 2009, Cut Costs, Grow Stronger. Retrieved from http://www.strategy-
business.com/article/00001?pg=all
Blinston, A., 2014, October 7, Why Was Buffet Wrong on TESCO? Retrieved from
https://investingsidekick.com/buffett-wrong-tesco/
Erickson, J., 2014, September 24, The Middle-Class Squeeze: A picture of Stagnnt Incomes, Rising Costs and
What we can do to Strangthen America’s Middle Class. Center for American Progress. Retrieved from
https://www.americanprogress.org/issues/economy/report/2014/09/24/96903/the-middle-class-
squeeze/
Gye, H., 2013, February 4, Supermarkets can sell mince which is less than 50% meat after Government asks
to opt out from new EU rules, Dailymail. Retrieved from http://www.dailymail.co.uk/news/article-
2273141/Supermarkets-sell-mince-50-meat-Government-asks-opt-new-EU-rules.html
Hermans, L. and Bots, P., 2002, Metagames: Exploring Participatory Stakeholder Analysis for Water
Management in Egypt, Simulation-games for research learning and intervention, Eburon Academic
Publishers, Delft, p. 205-224.
Hermans, L. M. and Thissen, W. A. H., 2009, Actor analysis methods and their use for public policy analysts,
European Journal of Operational Research, p. 808-817.
Hipwell, D. and Knowles, T., 2015, January 10, Tesco’s supermarket cost-cutting threatens thousands of
new jobs, The Times. Retrieved from
http://www.thetimes.co.uk/tto/business/industries/retailing/article4319273.ece
Howard, N., 1971, Paradoxes of Rationality: Theory of Metagames and Political Behaviour, The MIT Press,
Cambridge, Massachusetts.
Iyengar, S. S. and Lepper, M. R., 2000, Personality Processes and Individual Differences. Journal of
Personality and Social Psychology, p. 995-1006.
Myerson, R. B., 1991, Game Theory: Analysis of Conflict, Harvard University Press, p. 1-2, Chapter 1.
Nicholson, C., 2012, The relationship between supermarkets and suppliers: What are the implications for
consumers?, Consumers International.
Rankin, J., 2013, December 4, What’s Gone Wrong with Tesco, The Guardian. Retrieved from
http://www.theguardian.com/business/2013/dec/04/tesco-whats-gone-wrong-uk-largest-supermarket
Rasmusen, E., 2007, Games and Information: An Introduction to Game Theory, Blackwell Publishers.
Seely, A., 2014, The UK Competition Regime, House of Commons Library, Business & Transport Section.
Shaw, K., 2005, ASDA WAL-MART: The Alternative Report, War on Want.
Schelling, T., 2010, Game Theory: a Practitioner’s Approach, Economics and Philosophy, p 27-46.
35
Simms, A., 2014, September 22, Tesco: Why did it go so wrong?, The Guardian. Retrieved from
http://www.theguardian.com/commentisfree/2014/sep/22/tesco-pursuit-of-profit-britains-biggest-
supermarket
Smithers, R., 2013, October 16, Tesco to give surplus fresh food to FareShare to help charities, The
Guardian. Retrieved from http://www.theguardian.com/environment/2013/oct/16/tesco-surplus-food-
banks-fareshare-charities
Smithers, R., 2013, October 21, UK supermarkets face mounting pressure to cut food waste, The Guardian.
Retrieved from http://www.theguardian.com/business/2013/oct/21/uk-supermarkets-pressure-cut-food-
waste
2014, August 15, UK economic growth revised up to 3.2%, BBC. Retrieved from
http://www.bbc.com/news/business-28800141
2014, November 11, UK Supermarkets (Market Share 2013-2014), Grocery News. Retrieved from
http://grocerynews.org/2012-06-16-08-27-26/supermarkets-market-share/grocery-stores
2015, January 13, Sainsbury's to cut 500 support jobs in cost cut push, BBC. Retrieved from
http://www.bbc.com/news/business-30799099
36
Appendix A. Retail sales growth
This appendix presents the past rend for the retail sales in the UK.
Figure A1 - All retailing seasonally adjusted sales volume and values. Source: Office for National Statistics, 2014.
Elucidations on and conclusion from this figure (Office for National Statistics, 2014):
In the period between 2007 and 2012 the sales volume stayed about even while the volume
significantly increased;
In August 2014, the quantity bought in the retail industry (volume) increased by 3,9% compared to
August 2013;
The revenue increased by 2,7%;
In August 2014, non-seasonally adjusted data shows that the prices of goods sold in the retail industry
(as measured by the implied price deflator) decreased by 1.2%.
37
Appendix B. Stakeholder analysis
38
Appendix B.2 Determining the interests, objectives and problem perceptions of actors
The table below shows the list of actors that are involved in the UK market share competition issue. The table consists of:
• Actors: consists of actors' name;
• Interest: actors' general interest;
• Desired situation/objectives: objectives they want to achieve in the issue;
• Existing or expected gaps: what condition is preventing them from achieving their objectives;
• Causes: what is causing the gaps;
• Possible solutions: what can the actors do to overcome the gaps.
Desired situation/
Actors Interests Existing or expected gaps Causes Possible solutions
objectives
Food, clothing High stock value, increase With 17.2% of market share it is Families’ budgets are under Expand the excellence of its
and general of profits, increase of the 2nd leading supermarket in pressure, lower pricing strategy leading lines (fish, meat and
ASDA merchandise market share, become the UK1, has been experiencing a didn’t work, increase of confectionery) to other groups
retail. market leader stagnated growth in the last years competition and regulation of products, expansion activities
which is feared to continue to catch more customers
Food, clothing High stock value, increase With 30 % of market share it is Big focus of resources and Give more attention to its main
and general of profits, increase the the market leader, declining efforts in international market (UK market), reduce the
Tesco merchandise market share gap to its profits and stock value, expansion, offers a wide set of range of products offered,
retail competitors decreasing market share products2, investment in invest in its online segment
physical shops3
Food, clothing High stock value, increase With 16.2% of market share it is Big enough to compete with the Focus on having clear offers to
and general of profits, increase of the 3rd leading supermarket in other players in price but not its customers, offer a more
Sainsbury’s merchandise market share, become the UKError! Bookmark not defined., big enough to surpass them, articulated value proposition
retail market leader has been experiencing a increased the variety of
stagnated growth in the last years products sold too late
Food, clothing High stock value, increase With 12,1% of market share it is Recently lost a price war with its Compete in product quality
Morrisons and general of profits, increase of the 4th leading supermarket in direct competitors for the basic instead of price, target a market
needs products, slow entry to
39
merchandise market share, become the UK, has been experiencing a the online segment (only this segment accordingly, develop
retail market leader stagnated growth in the last years year) the online service
Food, clothing High stock value for They have a market share of Are winning the price war by Intensive marketing focus on
and general shareholders, increase of 5.2%, 4.8% and 3.5% respectively, far, do not buy from top brand the low and middle classes in
Waitrose, Aldi merchandise profits, increase of market their market share is increasing suppliers, are targeting the low order to grow even more
& Lidl retail share significantly more than the and middle classes, high
market share of the main employees’ productivity
supermarkets
Food and Increase profits in order to The existence of big Bigger supermarkets have Improve product quality,
Small
general expand their business, supermarkets prevents the access to economies of scale improve customer service
supermarkets
merchandise become more competitive expansion of the smaller ones, and scope (lower costs and performance, maintain loyal
& grocery
many can go out of business more diversity of products) customers, associate with other
stores
small establishments
Maximize their High product quality, cheap Diversified offer from many Cheap supermarkets have worst Support local independent
utility products, good service, supermarkets can make the locations (outskirts of cities and retailers and keep an eye on
(dependent on convenient shop location decision making more difficult, towns), big competition for local planning proposals to
Consumers product quality, not easy to find the “cheaper people’s loyalty ensure retail developments,
cost, time and product” make a full environmental,
experience) economic and social impact
assessment
Salary, career High salary, security of The dimension of the Supermarkets efficiency in Improve labour conditions,
development, employment, good working supermarkets is not proportional terms of employees (employ appeal to the workers' union,
Employees job fulfilment conditions, good career to the amount of created jobs, only 50% more people than applications for professional
development programs resistance to career development local stores) development programs
(big companies), low salaries
Production and Increase product margins, Pressure to decrease product Retailer competition forces Propose more added values,
distribution of expand their business, margins, the average collection them to reduce their margins, improve the rule in the contract
goods increase profits period is much bigger than the the winner is the one with the with retailers, appeal to a
Suppliers
average payment period, cheapest price and the loser strong regulation
retailer's house brand suffers with unsold items
competition
40
Environmentalists Environmental Decrease the amount of Every year millions of tons of People tend to buy more than Help supermarkets to spread
protection, pollution, development of food is wasted4, animals continue what they need, (i.a. caused by their soon to be expired food to
animal animal rights, increase the to be badly treated in the food supermarkets’ multi-buy deals charities5, appeal for more
protection, bio- amount of bio-products in industry, bio-products are still a and other marketing tools), bio- animal protection laws,
products supermarkets minimal percentage of the products high prices, advertise bio-products
products sold minimization of costs
Department Environment, Development of a Now and then some animal To lower costs the Regulations have to be
for food production sustainable food sector related disease appears in the supermarkets cut on animal implemented to guarantee
environment, including animal health and food sector, animal health is not health and welfare as well as animal welfare and the quality
food and rural welfare always guaranteed the quality of the food6 of food
affairs
Competition Regulation, Prevent and reduce anti- This market is a clear oligopoly Retailers tend to win the Have more watchdogs and
and markets market competitive activities, and so needs strong regulation market, application of a win- apply stricter rules and
authority competition prevent the occurrence of activities lose strategy that is not punishments
(government) cartels beneficial for other parties
Efficient and Increase UK economic UK has a strong economy, has Big supermarkets are opening Boost local stores, give
Department sustainable growth, increase the been experiencing a positive new stores in rural areas, small subsidies to increase the small
of economic national country’s GDP, economic growth since 2009, its supermarkets and grocery businesses development,
affairs economy increase the buying power actual value is above 3% per year7 stores cannot compete with differential taxes policies
of people them
Labour's right Higher salary for Sometimes the working Companies have their own Dialog with companies to
Britain's employees, better working environment or their salary is not policies regarding money improve employees’ working
General environment, safety, good for employees' safety or for spending, which can lead them conditions. Report situations of
Union8 facility and benefits for a good productivity to pay only the minimum wage bad working conditions
employees
Table B1 - Stakeholder analysis: determining the interests, objectives and problem perceptions of actors.
41
Appendix B.3 Interdependencies table
Interdependency Table
Dedicated actors Non-dedicated actors
Critical actors Non-critical actors Critical actors Non-critical actors
Similar/ Employees (conflicting Department of
supportive objectives regarding Economic Affairs
interest and wages, but supportive
objectives interests with respect
to job security)
Conflicting Consumers, suppliers Waitrose, Aldi, Lidl, Competition and Department for
interest and Tesco, Sainsbury’s, small supermarkets Markets Authority Environment, Food
objectives Morrisons and grocery stores, (government) and Rural Affairs
environmentalists,
Britain's General
Union (GMB)
42
affected or damaged too a certain extend. They don’t seek to play an active role, but will only when
needed.
Department of economic affairs - is considered as a non-critical actor because they are not
considered to have direct regulatory power (only indirect through i.a. the Competition and markets
authority). The ministry is considered to be non-dedicated because they will only use their powers
when they feel it is necessary, hence when certain values are affected.
43
Appendix B.4 Important resources, resource dependency and replaceability
The table consists of:
Important resources: formal and informal means that are available to the actors to realize their
objectives;
Replaceablity: if one actor’s resource can be replaced by another actor;
Resource dependency: to what degree are the actors dependant on this actor’s resources;
Critical actor: is this actor important based on its “power of realization” or “blocking power”?
Resource Critical
Actors Important resources Replaceability
dependency actor?
Know-how (they were e.g. first to Yes Limited Yes
use electronic checkouts),
Tesco
reputation, money, biggest
market share.
Reputation, money, market Yes Limited Yes
Sainsbury’s
share.
Reputation, money and market Yes Limited Yes
Morrisons
share.
Waitrose, Aldi & Lidl Low price products, reputation. Yes Limited No
Easy access for locals. No (if we see them as Limited No
Small
individual shops, one
supermarkets/
can be replaced but
grocery stores
never all of them).
Money, buying power. No (if we see them as High Yes
a whole, individual
Consumers
consumers can be
replaced)
Manpower, experience, regarding No (if we see them as High Yes
working in a supermarket. a whole, individual
Employees
employees can be
replaced).
Supply stock, price control. No (if we see them as High Yes
a whole, individual
Suppliers
employees can be
replaced)
Influence to government Yes Limited No
Environmentalists
regarding environmental issues.
Department for Authority and formal power in No High Yes
environment, food food sector.
and rural affairs
Competition and Authority on regulating market No High Yes
markets authority competition.
Department of Authority on regulating market No High No
economic affairs competition.
Britain's General Labour rights. Connection with No Limited No
Union (GMB) the government.
44
Appendix C. Non-qualified workers average salaries
This appendix presents non-qualified workers' average salaries of the UK’s supermarkets.
Table C1 – Non-qualified workers’ average salaries of the UK’s supermarkets. Source: Glassdoor.com, 2014.
45
Appendix D. The increasing trend of e-business
The supermarket industry is undoubtedly changing, and one of the main causes is the growth of the e-
business sector, as it can be seen in Figure D1.
Table D1 – UK internet sales as a % of total retail sales, monthly data, not seasonally adjusted. Source: Rhodes, 2014.
It is expected that by 2020 the e-commerce will capture 34% off the total retail sales. This increase will lead,
on the other hand, to a decrease of 21% in retail space, and to a decrease of 31% in the number of shops
(Rhodes, 2014). Logically, these numbers are a big motivation to reduce personnel costs, since less shops
mean less jobs.
46
Appendix E. Removing the infeasible scenarios from all the possible combinations of actions
In this appendix, the infeasible scenarios will be removed from all the possible combinations of actions.
Table E1 - Removing the infeasible scenarios from all possible combinations of actions for the issue “Reducing Suppliers’ Margins”.
47
Scenario S13 is infeasible for the same reason that scenarios S4, S5 and S6, as well as scenarios S16, S17 and S18.
Scenario S19 is infeasible because ASDA’s Suppliers do nothing when ASDA reduces their margins. Here, since the Competition and Markets Authority does
not suppress supermarkets actions, ASDA’s Suppliers cannot do nothing, at least they have to accept the new terms.
Scenario S21 is considered infeasible because it is assumed that ASDA’s Suppliers only change their business partners when ASDA reduces its suppliers’
margins and Main Competitors do not. In this case both ASDA and Main Competitors reduce their suppliers’ margins, and so ASDA’s Suppliers cannot change
their business partners.
Scenarios S23 and S24 are considered infeasible because it is assumed that ASDA’s Suppliers only accept new terms or change their business partners when
the Competition and Markets Authority does not suppress supermarket’s actions (when both ASDA and Main Competitors reduce their supplier’s margins).
In this case it does, and so ASDA’s suppliers should do nothing because the supermarkets actions have no effect on them.
Table E2 - Removing the infeasible scenarios from all possible combinations of actions for the issue “Reducing Wages Cost”.
48
Appendix F. Scenarios to be maintained
Some scenarios should be maintained in order to draw the most appropriate conclusions: the status quo
represents the situation as it was if nothing was done to change it, and so it is always the same during the
analysis; the present scenario incorporates the actors’ moves in order to achieve their objectives; the
positions of different stakeholders are the scenarios that comprise actors preferences, to which they would
like others to agree to; compromises are scenarios in which two or more stakeholders give away their
position in order to achieve a scenario that is better suitable to all; conflict points are scenarios that cause
clash, good to force other actors to accept a determined position (Hermans and Bots, 2002).
49
Appendix G. Actors’ preferences over the actions
Actors’ preferences over the actions for the issue “Reducing suppliers’ margins”:
ASDA
ASDA prefers reducing its suppliers’ margins rather than doing nothing because this way it can save
costs. If it is manageable, ASDA will increase its profits and free money to invest into another areas,
release resources that before were blocked to apply into other areas of business;
ASDA prefers that its main competitors do nothing instead of reducing their suppliers’ margins too.
This way ASDA can gain a competitive advantage over them. It will have extra money to invest
whereas its competitors will not;
ASDA logically prefers that the Competition and Markets Authority does nothing, that is, that it does
not block its activities by considering them unfair competition. If it does, ASDA will have to pay huge
fines for “bullying” the supermarkets;
ASDA prefers that its suppliers accept the new terms when these are changed. The least preferable
action, for ASDA, that its suppliers can do, is to change the supermarket with which they do business.
This implies that some products will be out of ASDA’s shelters to be in some other supermarket. This
can lead customers loyal to those products to stop buying in ASDA, to change supermarket too.
Main Competitors
ASDA’s main competitors prefer that ASDA does nothing instead of reducing its suppliers’ margins.
This way the main competitors can gain a competitive advantage over ASDA. They will have extra
money to invest whereas ASDA will not;
ASDA’s main competitors prefer reducing their suppliers’ margins rather than doing nothing because
this way they can save costs. If it is manageable, they will increase their profits and free money to
invest into another areas, release resources that before were blocked to apply into other areas of
business;
ASDA’s main competitors logically prefer that the Competition and Markets Authority does nothing,
that is, that it does not block their activities by considering them unfair competition. If it does, they
will have to pay huge fines for “bullying” the supermarkets;
ASDA’s main competitors prefer that ASDA’s suppliers change their business partner. This way ASDA
may lose some customers for not having all the products they were looking for. By changing their
business partner, ASDA’s suppliers will probably start doing business with its main competitors, which
is good for them. Overall, a decrease in ASDA’s market share will probably mean an increase in theirs.
After this, they would prefer that ASDA’s suppliers do nothing instead of accepting the new terms
proposed by ASDA, since this will mean that ASDA was successful in reducing their costs over the
products sold.
50
The Competition and Markets Authority prefers that ASDA’s suppliers do nothing because that means
that ASDA also did nothing. After this, it prefers that ASDA’s suppliers change business partner
because this way they are fighting off a “bullying” activity and working towards a better competitive
market. If ASDA’s Suppliers accept the new terms, it will mean a lost for the Competition and Markets
Authority.
ASDA’s Suppliers
ASDA’s suppliers logically prefer that ASDA does not reduce their margins;
ASDA’s suppliers prefer that ASDA’s main competitors do nothing too. If they do, ASDA can feel
pushed to do the same and that will lead to lower margins for them;
ASDA’s suppliers logically prefer that the Competition and Markets Authority block whatever
suppliers’ margins reduction strategies supermarkets may engage in;
ASDA’s suppliers prefer that everything stays the same, that they do not need to do anything. After
this, they prefer to change the supermarket with which they do business instead of having to accept
the lower margins they are faced with. They will have some bureaucratic work to change their
business partner, but their margins will stay the same.
Actors’ preferences over the actions for the issue “Reducing Wages Cost”:
ASDA
ASDA wants to save costs with its workers. It can do that by reducing their salaries or by dismissing a
determined number of workers. For ASDA both this actions have the same weight since what matters
is their purpose;
ASDA prefers that its main competitors do nothing instead of reducing their wages costs too. This
way ASDA can gain a competitive advantage over them. It will have extra money to invest whereas
its competitors will not;
ASDA prefers that the employees’ coalition does nothing and understands its position. Moreover,
ASDA prefers that they protest by reducing their productivity rather than by engaging in a strike, since
this last measure will lead to a reduction in sales and to bad publicity.
Main Competitors
ASDA’s main competitors prefer that ASDA does nothing instead of reducing its wages cost. This way
they can gain a competitive advantage over ASDA. They will have extra money to invest whereas
ASDA will not;
ASDA’s main competitors prefer reducing their wages cost rather than doing nothing because this
way they can save costs. If it is manageable, they will increase their profits and free money to invest
into another areas, release resources that before were blocked to apply into other areas of business;
ASDA’s main competitors prefer that the employees’ coalition engages in a strike against ASDA. After
this, they prefer that they reduce productivity. As fierce competitors, they always prefer the actions
that can “hurt” their opponents more, that is, that can “hurt” ASDA more.
Employees’ Coalition
The employees’ coalition logically prefers that ASDA does not reduce its employees’ salaries or
dismisses any workers since it affects them directly;
The employees’ coalition prefers that ASDA’s main competitors do nothing too. If they do, ASDA can
feel pushed to do the same and that will lead to negative consequences for the employees;
51
If ASDA reduces employees’ salaries or dismisses them, the employees’ coalition will prefer to engage
in a strike because they know that that action will have a bigger impact on ASDA than reducing
productivity. Since these two actions only happen when ASDA reduces employees’ salaries or
dismisses workers, the actions have a bigger preference than the action “do nothing”, to serve as a
mean of comparison for the cases where ASDA acts against them. When ASDA does nothing, the
employees’ coalition also does nothing, which in reality is the action that they prefer more.
52
Appendix H. Payoffs of the game model
Resources
This category intends to represent the “facilities” that every actors could have when taking up a specific
strategy in the game. It comprises if the actors have or not any “past knowledge” about the nature of the
strategy or if they have enough monetary resources in order to implement this action.
Benefits
This category represents the potential benefits that an actor could expect in a given scenario.
Public Image
Since the actors involved in the game are mainly supermarkets, the Public Image that an actors shows to
their costumers is very important. The model estimates that when an actor like LIDL (which normally sells
low quality and cheap products) increases the quality of their offer, then it should increase the popularity
of the brand.
Risk
This category intends to represent the risk that the implementation of a specific strategy might have.
Completeness
Actors are sometimes irrational, and despise the benefits or risk that the implementation of a strategy might
result in, they still have their preferences of what they think is better for the company. This category intends
to represent the irrationality of the actors.
To quantify the outcomes in each of the presented fields of interest in the game, an ordinal scale from -3 to
3 has been considered. This ordinal scale in Table H1 intends to represent “how good” an outcome in one
of the interests might be for an actor.
Table H1 - Meaning of the numerical ordinal scale used for estimating the payoffs of the game.
53
Actors Resources Benefits Public Image Risk Completeness
Tesco 0.15 0.20 0.30 0.25 0.10
ASDA 0.15 0.20 0.30 0.25 0.10
LCSM 0.25 0.20 0.15 0.35 0.05
S&M 0.15 0.20 0.20 0.35 0.10
Government 0,00 0.00 0.50 0.30 0.20
54
Appendix I. Payoffs and scenarios of the game model
In order to estimate the payoffs of the game, it is needed to give a numerical value to every interest category
(Resources, Benefits, Public Image, Risk and Completeness) for every scenario that could occur in the game.
In Figure I2, Figure I3 and Figure I4 the estimation of each interest category is presented for every scenario
of the game model.
In Figure I1 it is indicated how to interpret the indicated values for every scenario:
Please take into consideration that in Figure I4 the scenarios presented are only contemplating a situation
in which the government wouldn’t get involved. The analysts of the project consider that an intromission
of the government would only be justified to the public opinion, if four or three of the main supermarkets
of the country decrease the their prices. It is expected that if all the main supermarkets cut their prices, a
situation of unfair competition for the suppliers of the supermarkets might occur. In the last case the public
opinion would be favourable to accept the regulation of low prices.
In order to model the involvement of the government through regulations of low prices, the model gives a
negative payoff to the government if it decides to regulate low prices in an unjustified situation and a
positive one if the regulation might be justified (more than three supermarkets reduce their prices). Of
course if the government regulates low prices the supermarkets that decided to decrease their prices get a
negative payoff based on the risk that the strategy had for them.
55
Possible scenarios of the game if ASDA increases quality
Table I2 - Payoffs of the possible scenarios that could ocurr if ASDA increases the quality of their products.
56
Possible scenarios of the game if ASDA increases diversity
Table I3 - Payoffs of the possible scenarios that could ocurr if ASDA increases the diversity of their products.
57
Possible scenarios of the game if ASDA reduces the product prices
Table I4 - Payoffs of the possible scenarios that could ocurr if ASDA reduces the price of their products.
58
Appendix J. Complete game theory model
Figure J1 - Game model shown in its extensive form. ASDA actions (blue), Tesco actions (red), Sainbury's and Morrisons coalition actions (orange), low cost supermarkets
coalition actions (green) and government actions (black).
59
Submodel: ASDA increases the quality of its products
Figure J2 - Game model shown in its extensive form. ASDA increases product quality scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons coalition
actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
60
Submodel without dominated strategies: ASDA increases the quality of its products
Figure J3 - Submodel without dominated strategies. ASDA increases product quality scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons coalition
actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
61
Submodel: ASDA increases the diversity of its products
Figure J4 - Game model shown in its extensive form. ASDA increases product diversity scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons coalition
actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
62
Submodel without dominated strategies: ASDA increases the diversity of its products
Figure J5 - Submodel without dominated strategies. ASDA increases product diversity scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons
coalition actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
63
Submodel: ASDA reduces the price of its products
Figure J6 - Game model shown in its extensive form. ASDA decreases the price of its products scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons
coalition actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
64
Submodel without dominated strategies: ASDA decreases the price of its products
Figure J7 - Submodel without dominated strategies. ASDA decreases the price of its products scenarios. ASDA actions (blue), Tesco actions (red), Sainsbury’s and Morrisons
coalition actions (orange), low cost supermarkets coalition actions (green) and government actions (black).
65