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Strategic Management Overview Tesco Marketing Essay

Value chain expresses the activities that are taking place in a business firm, and relates them to an analysis of the competitive strength of the business firm. Therefore, it evaluates which value with each particular activity adds to the organisations products or services. This concept was built upon the insight that an organisation is more than a random collection of machinery, equipment, people and money. Only if these factors are arranged into systems and systematic activities it will become possible to generate something for which customers are willing to pay a price.[1]

The significance of value chain analysis is that it can help to assess costs in your chain that might be reduced or affected by a change in one of the chain's processes. By comparing your value chain to the competitors, the links of the chain where they might be more efficient can be identified and determine which areas can be improved.

A competitive advantage can be described as an advantage over competitors gained by offering consumers a greater value, either by means of lowering the price of products/services or by providing a greater benefits and service that justifies higher prices.

The kind of activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which desires to outperform its competitors through differentiating itself through higher quality of services and products will need to perform its value chain activities better than the opposition. On the other hand, a strategy based on seeking cost leadership will require a reduction in the costs related with the value chain activities, or the total quantity of resources used need to be reduced.

Tesco encountering intense competition from its direct competitors, including Sainsbury’s , Asda, ,Waitrose and Morrisons, which are competing with each other over price, products and promotions occasionally. It should therefore be highlighted that Asda is one of the main key competitors in this division with an increase of market share from 16.6% to 16.8% during the economic year 2010/ 09, while Sainsbury’s has shown an increase to 16.1% from 15.8% and Morrisons to 11.6% from 11.3% through the same period (Euro monitor, 2010)[5]. The market growth is essentially small which means that these increasing market shares from competitors have made the market rivalry even more intense, which is threatening Tesco’s market leadership position.

In countryside areas where the nearest superstore can be some distance away, some primary consumers are attracted by retailers like Somerfield and Co-op .

Tough discounters like Aldi and Lidl have taken over the market in times of recession. During 2008 they achieved a growth of sales of over 25% (Keynote, 2010)[6].

Bargaining power of buyers

The bargaining power of buyers is comparatively high.

The products that have a slight differentiation and are more benchmarked, the switching cost is very low and the buyers can easily switch from one brand to another.

It has been projected that customers are attracted towards the low prices, and with the accessibility of online retail shopping, the prices of products are easily measured, compared and thus selected.

Bargaining power of suppliers

The bargaining power of suppliers is moderately low.

It should be stated that the suppliers are inclined towards major food and grocery retailers and fear losing their business contracts with large supermarkets. Hence, the position of the retailers like Tesco, Sainsbury’s and Asda is further strengthened and negotiations are positive in order to get the lowest potential price from the suppliers.

[5] (Euro monitor, 2010)- international market intelligence on industries, countries and consumers http://www.euromonitor.com/

[6] (Keynote, 2010)- market intelligence, business information, market analysis http://www.keynote.co.uk/

TESCO Value Chain Analysis

can be defined as the links between key value adding activities and their interface with the support activities. Value chain has been implied as a strategic assessment tool used for individualising the strengths and weaknesses in value adding processes. A diagram of Tesco value chain is demonstrated below: Fig 6: Value Addition in Value Chain of Tesco

Inbound Logistics

The overall cost leadership strategic management of Tesco is demonstrated in its lean and supple inbound logistics function. The company uses economies of scope and its leading market position as key bargaining powers to attain low costs from its suppliers. The analysts have also highlighted the constant upgrading of their approved vendor lists, ordering system, and in-store processes to induce efficiency and effectiveness into the company’s inbound logistics operations.

Operations Management

Tesco has been praised by numerous supply chain management critics for its effective use of IT systems that smoothes the progress of the company’s low cost leadership strategy. According to Tesco (2010), the company has invested over £76 million in reformation of its operations through their Tesco Digital program, which is a third generation ERP solution for the company. The company has achieved £550 million in increased profitability during 2009 alone due to the introduction of this system. The company’s wide ERP system has also facilitated the minimisation of stock holdings within the company.

Outbound Logistics

Tesco has a well-grounded leadership position in online and offline food retail divisions, which is due to its effective and efficient outbound logistics. Drawing upon Mintel (2010), the company has developed a range of store formats and types, which are strategically placed to accomplish maximum customer exposure. These formats include Express, Metro, Superstores, Extra and Homeplus, which are segmented according to the target population.

Marketing and Sales

Loyalty programs like Tesco Club-card are being introduced through information technology advances which discouraged the customers from switching over to their competitors. Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues, including how to reduce food waste and their carbon footprint when preparing meals.

Services

Tesco has been followed a dual strategy of cost leadership and differentiation, which has led to an increased importance placed on customer service. Drawing upon Keynote (2010), this dual strategy is demonstrated through the development of financial services, self-service kiosks, focused direct marketing and promotions.

Conclusion

As a summary of the above analysis, it can be concluded that Tesco maintains a hold on its leadership position within the highly turbulent retail segment, where companies are obligated to pursue both cost leadership and differentiation strategies. Tesco has been continually able to achieve both with the help of a agile and lean supply chain management, along with the strategic use of information technology. The inner core competencies of Tesco have been seen to be united with the business environment, therefore highlighting a positive future outlook for the company.

The value chain framework proven that the value chain of a company may be useful in understanding and identifying crucial concepts to achieve competitive strengths and core competencies in the marketplace. The model also reveals how the value chain activities are united together to ultimately create value for the consumer. The four support activities and five primary activities form an interdependent system that is connected by linkages. Analysts carrying out the value chain analysis should break down the main key activities of the company according to the activities entailed in the framework/business structure, and consider the potential for increasing value through the means of cost advantage or differentiation. Finally, it is very essential to determine strategies that focus on those activities that would allow the company to attain sustainable competitive advantage.

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