Home Depot Blue Ocean Solution

Cluster Strategy’s Efficacy
Home Depot’s Frank Blake recently built a system to analyze demographic information and customer preferences. They sorted stores into 30 “clusters” with similar attributes. This is exactly the right paradigm for its store managers. It can have huge strategic effect on Home Depot stores in a lot of different and important ways. It can indicate and flag the price elasticity or inelasticity for key store items which are either high volume sellers and/or have wide margins. This ties directly to the consumer trend toward value, because now a store manager and headquarters know the effect of discounting certain key items in a given locale or region’s stores. Also, regional and local marketing campaigns’ efficacy can be measured more accurately. The key drivers or marketing tactics for a given demographic can be traced and adapted to areas and regions with similar demo-traits. This translates directly into selling more targeted goods, because of a higher level of marketing effectiveness. Lastly, in-store layouts and point-of-purchase displays can be tailored and emulated in the stores within a given cluster to optimize opportunistic sales.

What Localization’s Blue Ocean Means
Effective localization accomplishes the goal of blue ocean strategy which is to be stronger on dimensions which mean the most to customers. This leads to a factor which is typically symptomatic of a good blue ocean strategy: “more sales, more often” than what your company did before, and usually more than direct and indirect competitors. Localization like any good blue ocean strategy increases demand for your company’s goods or services. A result of this blue ocean strategy is that sales can increase regardless of pricing, and lead to higher margins even with the market’s trend toward value and lower prices. Home Depot is proof-positive of this important characteristic – its gross margins have risen in each of the past three quarters compared with a year ago. This is impressive when considering how terrible the housing market is and that their aggregate sales have slid as a result.

Dive Into The Water: Differentiate And Lower Costs
Home Depot is diving deep into the blue ocean waters of using local data and factors to decentralize purchasing patterns for its individual stores. This is likely to lead to offering and services which are unique to individual stores that can then be shared with other stores that have like local factors. And this is really what distinguishes and separates retailers from one another – what they offer and sell it at, how they offer it, and how this is communicated to customers. Localization impacts all three of these aspects, and as with any good blue ocean strategy, differentiates and minimizes costs. All retailers need to consider diving in, but just make sure the water is blue (the right tactics) and you can swim (are able to execute). Then the water will be fine!