-Home Depot and Lowe's dominate the market. Volume discounts allow large companies to offer extremely competitive prices.
In the 1990’s, Home Depot followed a differentiation business model. It focused on distinguishing itself from the competitors with knowledgeable, helpful employees, brand-name products, and a unique customer experience (Brown, 2007). As the home improvement retailing industry matured and became less fragmented, Home Depot recognized the need for a new strategy to maintain a competitive advantage and increase profitability. Therefore, Home Depot’s top management team decided to implement a cost-leadership strategy (Brown, 2007). Home Depot also utilized a chaining strategy to achieve cost advantages and consolidate the industry. It established networks of connected retail stores which helped them control their supply costs (Hill & Jones, 2008).
The cost-leadership strategy The Home Depot adopted allowed it to lower its cost structure and improve operating performance. This has enabled Home Depot to be more profitable than Lowe’s and other competitors, such as Menards. Another benefit of the cost-leadership strategy is that Home Depot is able to charge a lower price which attracts more customers and increases its competitive advantage (Corral, 2010). The Home Depot has been able to “destroy brands and transform entire products into low-margin commodity markets (Schwalm & Harding, 2000).”
Within its cost-leadership model, The Home Depot has established a “three-pronged strategy to boost business this year and onward (Corral, 2010).” It is specifically concentrating on supply-chain transformation, merchandise transformation, and customer service. According to Marvin Ellison, evp, U.S. stores, the three-pronged strategy creates great value for Home Depot while instituting product authority (Corral, 2010). Along with this, “Home Depot is shifting its model to cater to do-it-yourself customers” by changing its “product-mix in stores to focus on smaller projects” since the “money is in small projects that homeowners can accomplish themselves over one or two weekends without breaking their bank accounts (Peterson, 2011).” Home Depot wants to improve customer service and simplify store operations.
Gregory M. Bridgeford, chief customer officer: “We are…