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Customer satisfaction and service quality of tesco

In service industry it is important to achieve higher customer satisfaction because in today’s highly competitive market every company has excellent products, excellent delivery system but all can make a difference by having excellent service mindset.

This paper focuses on Tesco as an international retailer, primarily how its focus on service quality is directly linked to customer satisfaction. This will be achieved by looking at the various elements that create value for Tesco namely; the Tesco Brand, the segmentation of Tesco’s market and Tesco’s ethical and cultural dimensions. The process of assessing the service quality was done initially through a practical field visit to Tesco Egham where as a group we purchased a specific product, Tesco Brand Greek Style Yogurt. This enabled us to build a practical service blueprint for Tesco, highlighting the key elements of its service delivery. To allow an in depth analysis of the service quality at Tesco, the Service Quality Analysis (ServQUAL) model will be applied. Principal to the ServQUAL analysis is a qualitative questionnaire that was used as to assess the service quality perceptions and expectations of the Royal Holloway MBA Class of 2010. Upon administering the questionnaires, our findings were that the Royal Holloway MBA Class of 2010 perceived service gaps in all service areas namely; tangibles, reliability, responsiveness, assurance, and empathy. Once we had gap score we implemented improvement plan which Tesco can use to increase customer satisfaction.

Introduction

Founded in 1919 in Edgeware Midlesex United Kingdom by Jack Cohen, as retail food and drinks store, Tesco has risen to be the top retailer in the United Kingdom. Through a process of massive expansion over the years Tesco is one of the United Kingdom’s most widely recognized brands. (Tapp, 1998) The company operates 4,331 stores in 14 countries across Europe, the USA and Asia (Tesco, 2010).

Anchored on the slogan, “Every Little Helps”, Tesco stores have become synonymous with variety, low prices and service delivery (Temporal, 2004). This view has driven its mission to be a successful international retailer achieving group annual revenue of £62.5 billion and operating profit of £3.5 billion in the fiscal year 2010 (Tesco, 2010)

As a service oriented entity, Tesco has to carefully consider the area of service ensuring that Tesco has competitive advantage through differentiation of its products and services.

This paper focuses on Tesco as an international retailer, primarily how its focus on service quality is directly linked to customer satisfaction. By analyzing the key elements of Tesco services namely; the Tesco Brand, the segmentation of Tesco’s market and Tesco’s ethical and cultural dimensions. An application of the Service Quality Analysis (ServQUAL) model will be through a qualitative questionnaire on the sample of the Royal Holloway MBA Class of 2010 will give a specific assessment Tesco’s service quality based on the perceptions and expectations of the sample group.

The Brand

The brand of a service entity has significant impact on its marketing strategy. (Bitner, 2007). Bitner (2007), further notes that given the importance of a strong centralized brand for deepening and extending customer relationships, growth oriented businesses are more likely to succeed if they have a brand name that can be applied to new markets. This reflects that branding is neither just advertising that promotes a product and announces its advantage to the target market, nor a name symbol or a logo (Laura, 2010). It is an element of the service retailer which creates the firms image in the market a brand, resulting in it engaging the emotions, faith and loyalty of consumers (Jobber, 2010).

Building on the slogan that ‘Every Little Helps’ Tesco has over the past few decades strategically positioned its brand as the UK’s most valuable brand (The Telegraph, 2010) through key brand positioning strategies such as; The Tesco Club Card, Self Service Pay Points, Student Cards, Online Stores and Door to door delivery.(Temporal, 2007)

Segmentation, Targeting and Positioning

In the retail services industry both quality and service are pivotal in ensuring that a retail entity maintains competitive advantage. The brand has to be supported by business strategy that facilitates the increase in market share. In establishing its brand, Tesco applied a key strategic model through the ‘Club card’ which brought it great success. With ardent competition from other supermarket chains such as, Sainsbury, Waitrose and Marks and Spencer, Tesco selected a differentiated product strategy which has seen it become one of the best know examples of direct segmented marketing in British commercial history. (Tapp, 1998)

Competitors such as Sainsbury and Waitrose failed to see how key this strategy was when it was launched in the early 1990’s, dismissing it as nothing new. (Temporal, 2007) Tesco continued to capture valuable information with every swipe of the card and built a powerful database of customers, which it gained through card membership information. (Temporal, 2007) With that data Tesco then segmented its customers on finance function, resulting in streamlined marketing based on the data. (Tapp, 1998)

Ethical and Cultural Dimension

Service oriented organization’s ethical characteristics are shown by their mission, values and by the maintenance of stakeholders. As a global company Tesco cannot behave as if its owners, shareholders and employees are the only important stakeholders. (Bindexin and Avratt, 2007), Bindexin (2007) highlights that corporate identity is more than just an organisational mark or symbol of recognition.

Tesco’s culture should be a mixed blend of leadership, structure, reward system, norms, decision process which are shared by values and beliefs (Alexandre Ardichvili et al, 2009). Tesco needs to act as a responsible organization which is committed to care for customers, staff, environment, community and society as a whole by aiming to do business ethically, both internally and externally.

Tesco’s philosophy is; “We treat people how we like to be treated to ensure that the customer response is “Tesco works for me” (Tesco, 2010).

Equally, Tesco has a community focused corporate social responsibility in five main areas; the environment, communities, buying and selling product responsibly, healthy choices for customers, and staff. Showing its concern for the environment by reducing UK absolute emission by 2%, Tesco has opened world’s first zero-carbon supermarket in UK and committed to be zero-carbon business by 2050. (Tesco, 2010) Tesco believes in giving back to local communities evidenced by its donation of 1% of the pre-tax profit to charity annually.

Highlights of Tesco’s responsible behavior in 2009:

Service – Does Every Little Really Help?

What is Service Quality

The increasingly competitive retail market has led consumers to become more selective in the services they choose. (Palmer, 2008) Tesco is a world leader in the retail market and has a large market share in the UK, with competing retail shops such as Waitrose matching themselves against Tesco with regards to pricing. It is argued that improving service quality will increase customer satisfaction, leading to higher sales and profits (Jobber, 2010). For many customers the perception that they have of the service they should receive, has direct impact on the view that they have on the service when it is actually delivered. If the perceived quality of service is not met then the conclusion of the customer is generally that the quality is bad. Jobber, (2010), states that companies that are rated higher by the target market on service quality perform better in terms of market share growth and profitability. Relationship marketing shifts the focus of the marketing exchange from transactions to relationships (Foss and Stone, 2001; Peck et al., 1999; Christopher et al., 1991; Buttle, 1996) Tesco highlights in its annual report of 2010 that its customer commitment is based on the premise that ‘no one tries harder for customers’ based on the some of the following promises and values to the customer:

Customers get what they want in store

Low prices

Great staff that are committed to the customers.

“Treat people how we like to be treated”

Staff Training (Tesco, 2010)

Unless the service that Tesco promises to deliver is aligned with the service that is actually provided to the customer, there will be a gap between the service provided and the service received. With this in mind it is important to assess whether the view of service quality from the perspective of the consumer aligns with the service that they receive and this can be done through a service blueprint.

5.2 Service Blueprint

The service blueprint is a picture or map that shows the process of service within a service entity such as Tesco. It helps to understand how a Tesco consumer would assess the process of service in Tesco. If assessed it helps the company to improve service, based on customer feedback (Zeithaml and Bitner, 1996).

Zeithaml and Bitner (1996), highlight that there are 5 key stages that need to be assessed in the building of a service blueprint namely:

1. Customer Action - Charting the choices and actions that the customer performs or experiences in purchasing, consuming, and evaluating the service.

2. Onstage Contact - Face-to-face encounter with the customer by frontline employees

3. Back Stage Contact - Non-visible activities for the customer by back stage staff.

4. Support Processes - Internal services, steps and interaction that take place to support the employees in delivering the service.

5. Physical Evidence - Tangibles which customers are exposed to or collect during interaction.

Figure 1

(Zeithaml and Bitner, 1996)

The authors conducted a practical approach to service blueprinting by going to Tesco, Egham to purchase Tesco Brand Greek Style Yogurt. The reasoning was that a practical approach to the blueprint would allow the authors to get qualitative evidence of the process and give detailed feedback on what the service blueprint for Greek Style Yogurt actually looks like. This allowed the gathering of direct evidence of service enabling us to see what the customer sees and receives in each step of the customer experience, as highlighted in Figure 2, below.

Group E Tesco’s Blueprint specific on Greek Style Yogurt

Figure 2

5.3 ServQual – A Measure of Service Quality

The above service blueprint involves many stakeholders; however the key stakeholder is ‘the customer’. Given the complex nature of service quality, as cannot be easily defined and categorized, an analysis has to be applied to evaluate it. Parasuraman et al (1988), developed a model that facilitates the qualitative measuring of service quality known as ServQUAL. (Palmer, 2008) ServQUAL is based on five key criteria namely; reliability, courtesy, responsiveness, competence and tangibles.

Figure 3

Tangibles refer to the relative appearance of physical elements of the retail outlet. Reliability considers accuracy of performance on service quality. Responsiveness describes promptness and helpfulness. Assurance, encompasses, competence, courtesy and credibility and empathy describes good communication between customers and service providers.

5.4 Methodology

To apply the SERVQual analysis, questionnaires are administered to the customers with questions based on the five factors as highlighted above. The analysis is customer focused and aims to highlight the differences between the service expectations and perceptions of the customers. Parasuraman et al, based their views on the assumption that only customers can judge quality - all other judgments are perceived to be essentially irrelevant for the purpose of the ServQUAL analysis. Customers are asked to rate questions answered under each of the above criteria relating to their expectations and perceptions. (Palmer, 2008) According to Palmer (2010) the questions are rated on a Likert Scale from 1 (strongly agree) to 7 (strongly disagree) and the measure of service quality is therefore derived by subtracting expectation scores and perception scores. A questionnaire was formulated especially for Tesco, (Annexure 1) and administered to the Royal Holloway University of London MBA Class, 2010 (RHUL MBA).

As shown in the Figure 4, an application of the above methodology will arise in an analysis of service quality based on 5 gaps between perceived and expected service by consumers. Gap 1 shows the difference between actual customer expectations and management’s idea or perception of customer expectations. Manager’s expectations of service quality may not match service quality specifications. This mismatch is demonstrated in gap 2. Gap 3 is the service performance gap which could be training, communication, and preparation of employees who interact with the customer. Gap 4 shows the differences between services delivery and external communications with the customer. Lastly Gap 5 indicates the difference between customer’s perceptions and expectations from services. The emphasis of the analysis is in identifying the nature of quality of service (Danuta, 1997)

Figure 4

The Findings

Based on the data we collected from The RHUL MBA class, an average of the perceived and expected values of the service at Tesco were calculated, for each of the ServQUAL components as shown in Table 1. With these values, the gap score (difference between perceived value and expected value) was calculated (Shahin, 2005).

For example, the reliability component gap score calculation was as follows:

Gap Score (Reliability) = 5.10 – 6.65 = -1.55

Tangibles

Reliability

Responsiveness

Assurance

Empathy

Perceived

4.95

5.10

5.20

5.18

4.95

Expected

5.95

6.65

6.20

6.33

6.28

Gap Score

-1.00

-1.55

-1.00

-1.15

-1.33

Table 1

Average values for ServQUAL components and GAP Score

According to Foster (2001), a clear illustration of the service gaps (Table 1), can be shown by plotting the values for different components on differencing planes (Figure 5).

Figure 5

On the horizontal axis there are perceived values and on vertical axis there are expected values. The finding is that what RHUL MBA expected of Tesco’s service and the service that they perceive to have actually received does not align. Referring to the above table and further to the example of the reliability component which has highest gap, RHUL MBA, feel that Tesco is not giving service on time and they do not do what they promise to do efficiently and accurately. This gap can be identified as GAP #5 in Figure 4 above. Different gaps are identified for different components based on the GAP score that is attained.

Conclusion

Once a service gap has been identified, service can be improved by implementing effective quality improvement processes (Abby et al, 1993). On conclusion, there are certain steps that we recommend a company such as Tesco can consider (Figure 6). The first step is to reinforce customer focused service standards and communicate these to all the staff. Then provide customer oriented staff training and measure performance for certain period and give rewards.

Figure 6

Service gap improvement process – Steps to success

This will not only help to improve service accuracy but also customer relationship and finally higher customer satisfaction can be achieved (Abby, Simon & Matthew, 1993).

REFLECTIVE ANALYSIS

The saying goes that ‘many hands make the work lighter.’ Yet others would argue that ‘too many cooks spoil the broth’. These two sayings alone reflect the fact that people can view something differently and on that basis their outcome on the same project is very different. The dynamics of diversity when applied well are keys to ensuring the success of a group assignment. However the same dynamics could easily cause tension and disagreements which make the group assignment fail. It was not easy to work with four other professionals who have vast experience in their specific fields and different views on leading teams. We have narrowed our reflective learning into two key categories;

Research skills

From the onset of our MBA, it was stressed to us that we had to use reliable academic sources in our assignments. One of the first things we did as a group was go over the university’s booklet on referencing. We were very aware of the fact that if our referencing does not follow the University guidelines it would arise in plagiarism. We sharpened our research skills and soon learnt that merely researching on Google was not adequate. We learnt how to look for academic journals through the RHUL library catalogue and in order to maximise on the reading for our assignment we discussed and decided our key topics. Our topic of focus was the element of service quality with a focus on the application of the service quality analysis (ServQUAL). We began our research on the topic over a month before our presentation and we had to do a lot of research on the topic. Important to note here is the fact that we had never heard of the topic before we started our research. Through the reading of textbooks and journals we were by the time our presentation well versed on the topic. In addition to that we had to design a qualitative questionnaire administer it. It taught us the value of research and we were able to practically apply the skills that we had gained.

Value of planning and time management

When we embarked on the assignment we were also involved in other assignments for Business Economics and Business Strategy. We therefore had to be very coordinated in the way that we approached the assignment. Due to lectures, we could only meet during the three hour lunch break. The lunch break became our hub of productivity and in retrospect, we realise this created a cultured structure of planning and time management.

This area was not without its challenges however, the diversity of the group further reflected in the approach that we had to managing the time given to do research on specific assignments. Some members of the group were not keen on having deadlines set for them. This raised some tension within the group. Eventually we sat down as a group and discussed and resolved the issues. We soon realised the value of sharing information, for example if you are doing research on service quality but you found an article on service blueprint, you would then email that article to the person researching on service blueprint.

In the words of prominent American industrialist and founder of the Ford Motor Company, Henry Ford, ‘Coming together is a beginning.  Keeping together is progress.  Working together is success.’ As a group we can positively say that we have learnt invaluable life lessons during this assignment. We believe that overcoming the challenges associated with diversity has allowed us to stand as well rounded individuals who have been sharpened both academically and socially.

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