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REI is a sporting good company that specializes in quality outdoor gear. The company started in 1938 as a gear co-op, and has grown to include more than 3.5 million active members, which it serves through 30 stores, as well as catalog and Internet operations. REI has successfully built a competitive advantage through the four generic building blocks of efficiency, quality, innovation and customer responsiveness. REI has a distinct competitive advantage, relying on economy of scale to offer members a 10 percent annual refund on all purchases. It also runs an extremely efficient operation. All customer transactions are stored in the computer system to facilitate returns and exchanges, as well as track purchases. This allows REI to understand their customers better and target advertising appropriately. Also, the company has consolidated its’ distribution and logistics to source products more efficiently and economically. The company has two “500,000+ square foot Distribution Centers located in Sumner, Washington and Bedford, Pennsylvania” (www.REI.com) which are state of the art facilities, fully automated to take advantage of cost savings.
REI is unique among the sporting good companies in not offering discounted prices or weekly sales. It does periodically send 20 percent off coupons to members but it primarily generates sales by developing customer loyalty, unique product offerings, and a sense of community. This lack of discounted pricing and mass-market product offerings could be seen as a competitive disadvantage by some. REI is known for quality among outdoor enthusiasts. The company offers quality and innovative private label product under the REI and Novara brands, in addition to top quality national brands. The private label brands are priced lower; yet develop more profit margin than the national brands. They also practice environmental stewardship, donating money through corporate giving, as well as employees volunteering to protect the environment and operating in a sustainable fashion throughout their operations.
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"WHAT IS QUALITY?" QUALITY MANAGEMENT STRATEGIES ASSIGNMENT 1 A MSC IT MANAGEMENT Martin Gallin agh 10 th February 2003 What is Quality? NB: Throughout text, Product = Both Product/Service. Definitions Using the correct Tools (resources: raw materials, machinery, time and people) in the right way so that they are converted to the required outputs. It is in the process that quality is made or ...
REI funds and offers programs to introduce young people to the outdoors and encourage stewardship. The company is innovative, diversifying its’ operations by offering global adventure vacations and an Outdoor School in selected markets. The REI Outdoor School teaches outdoor skills to customers as well as encourages like-minded customers to join together in a community. This helps to propel sales and develop loyalty to REI. The company is on the Environmental Protection Agency’s list of top ten retailers for purchasing cleanly generated electricity and has pledged to being a climate neutral and zero waste to landfill company by 2020. These initiatives are important in giving customers additional incentive to shop with the chain. Customer responsiveness can be seen in REI’s distinct Internet shopping program. The company has set up computer kiosks in each location to encourage customers to shop its’ catalog on line and enjoy free store delivery on all shipped products. This allows the company to be more efficient (lowering the store cost of inventory and shipping product as needed) and well as responding to customer’s needs.
Customers wanting large, outdoor products like tents, canoes, or skis can enjoy free store delivery and arrange transportation home for the product without needing to wait for a delivery person at home or worry about packages being taken while they are otherwise occupied. The company also has distinctive competencies: it offers members a chance to buy returned, used, or damaged gear at significant discounts at REI Garage Sales, this keeps with the company’s “green” philosophy and further endears customers to the chain. The membership aspect of the company is an additional distinctive competency: it builds brand and store loyalty and encourages consumers to feel a part of the chain. Furthermore, the chain offers non-profits free meeting space, free clinics, and local service opportunities.
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This is distinctly unique in comparison to its’ competitors like Sport Chalet or Sport Authority, who focus on pricing and selection more than a total lifestyle approach to outdoor living. While REI has benefited from the growing outdoor/environmental interest, more of its’ success is due to strategy than luck. REI has chosen a business model that supports the focus and strategy of the business. There is a clear defined philosophy to preserve, protect, and enjoy the environment, which REI then uses as a driving force for all of its’ actions and creates value for the customer as well as profit for the company. This is turn gives the company a competitive advantage. REI is continuing to build upon this strategy by further evolving. The company is targeting new outdoor activities in its’ product selection, as well as continuing to address environmental issues in its’ business operations. Furthermore, the company continues to expand on its’ private label and REI Adventures, which are travel vacations for customers.
REI is working on expanding the share of mind it has with customers. Since REI enjoys economy of scale with its’ large customer base, established store, catalog, and Internet program, it makes it harder for new entries to claim a share of market. In addition, REI works on treating employees well, offering fair wages and health care to all employees. It is listed by Fortune Magazine as one of the top 100 Companies to work for. This is important since customer relations are a direct correlation of employee relations. The company does not appear to be having trouble adapting to changing industry conditions. In fact, one of REI’s core competencies is its’ ability to stay ahead of the curve, either environmentally or through retail innovation. Initially operating as a climbing co-op, the company has dramatically expanded to consistently serve more and more customers.
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The company has chosen not to focus on the same merchandise found in most sporting goods stores, but instead to feature performance gear for “true” outdoors people. This is not to state that one must actually climb or kayak to shop at REI. The cachet flows to all customers, letting them enjoy the environmental hype and feel good about themselves, even if they plan on wearing the gear to ride the subway. Strategically, REI continues to grow share of market by offering discounted rentals to children, free shipping, and even rock climbing access. The chain has adapted to changing outdoor interests, switching from climbing to family camping and bicycling.
The company is now offering more “sport casual” clothing to further serve the customer better. Plus, one does not have to become a member; the general public is now able to shop with the chain. REI’s strategic planning and savvy business sense have allowed the company to take advantage of its’ competitive advantages and raise the cost of entry to competitors. It continues to expand its’ reach to gain even more of the customer’s dollar and share of mind by offering not only sporting goods but also adventure trips, clinics, volunteer opportunities, as well as environmental stewardship.
References
Hill, C, Jones, G. (2010) Strategic Management Theory: An Integrated Approach.9th ed. Mason, OH: South-Western Cengage Learning. REI corporate website. Retrieved from the Internet at http://www.rei.com. REI (n.d.).
In Wikipedia. Retrieved from the Internet at
http://en.wikipedia.org/wiki/Recreational_Equipment_Incorporated
