Strategic Marketing Management Of Tesco Marketing Essay
Objectives are goals that a firm sets itself for the next three or five years. They have a timescale, they must be measurable and they must contribute to the business achieving its aims. The core objective of Tesco is to establish value for customers in order to gain their lifetime loyalty. Tesco’s success depends on their valued customers. These customers shop and work with the company. Tesco’s principle is, if the customer likes what they offer, surely these people will come back and purchase again.
The stage life cycle of the retail industry is no doubt to be mature because of the profits they are gaining every year. The retail industry’s profit is increasing and profiting from their cash cows. Tesco is the largest UK retailer and the 3rd largest global retailer. Tesco controlled 30.8% of the UK grocery market as of May 2009 and ~9% of the UK non-food retail market. The majority of its sales and profits are generated in its 2,282 UK stores, which are segmented into the following formats:
Tesco’s management focuses on customer satisfaction by giving customers more choices where to shop and by offering them attractive prices on its products. In the fourth quarter of 2008, Tesco began selling new discount range of products to compete more aggressively on price against discounters. Its prices are generally perceived to be at a small premium to Asda and a small discount to Sainsbury and Morrison.
Tesco’s primary supermarket competitors in the UK include Asda (17.3% share of UK grocery market), Sainsbury (16.3% share), WM Morrison Supermarkets (11.2% share), Waitrose (3.7% share), Aldi (2.9% share) and Lidl (2.3% share). In recent years, some of its major competitors have turned around their struggling stores, which will make it more challenging for Tesco to gain significant share in the UK market going forward.
Tesco uses its customer information to target and segment communications to the millions of its loyalty program members by almost infinite demographic, purchase, and lifestyle profiles. Several hundred million in-store purchases per day are being tracked by the loyalty-card program. The company developed 5,000 customer "needs" segments, with each segment receiving personalized coupons. Source: www.tesco.com
Income Statement Summary
- Sources: Companies, www.DeutscheBank.com
Tesco’s UK sales grew 4.3% last year (3% ex gasoline) and its net new stores contributed 2.7% to growth. Its UK sales also benefited from a 53rd week that represented 2.1% of sales and the first time contribution from the consolidation of Tesco Personal Finance.
International sales grew 30.6% (including FX benefits) and 13.6% at constant exchange rates benefiting from square footage growth and strong sales growth in Asia.
The company’s operating margin was flat at 5.9% in fiscal 2009 as unfavourable sales mix was offset by increased productivity and good expense control. Its EPS growth was only 2.6% last year, hurt by 26.7% tax rate vs. 24% in fiscal 2008 when it benefited from tax reimbursement and lower UK corporate tax rate.
The organisations of choice are within the Retails sector – TESCO and ASDA as the elective firm both are UK based companies.
1.1 Tesco objectives blend in with each other
All of Tesco’s objectives blend in with each other. None of the objectives will work without each other. For example; the business will not have any customers if the business is not operating well.
Share holders will not invest money in the business, if the business hasn’t got any customers. The company will not be able to afford to have any employees working for them if they haven’t got money being invested in the business.
Tesco Stakeholders are a certain group of people that have an interest in Tesco group businesses. Each group have their own interests in the business. The service-profit chain attempts to show the interrelationship of a company’s internal and external communities, stakeholders and highlights how customer loyalty that translates into revenue growth and profits might be achieved; developed by Heskett et al. (1994). It does this by establishing relationships between profitability, customer loyalty, stakeholders and employees satisfaction.
Tesco staffs hear customers' views on everything from how we are serving them in our stores to our role in the community. The customers are a bit like a pressure group because they apply pressure to Tesco to meet their needs. Meeting the customer's needs can be things such as expanding their stores.
Tesco employees give management their feedback through the Viewpoint staff survey, Staff Question Time sessions and Tesco Staff Forum process.
Tesco group core value is "treat people how we like to be treated", and it's something Tesco organisation applied firmly to enhance their supplier’s relationships.
Capital Investor Relations team regularly meet analysts from the financial institutions which invest in Tesco group or represent their shareholders.
All the above defined stakeholders are Tesco group influencers. They affect the outcome of the decision making process through their influence on others. Influence could stem formally from expertise, such as the advice of an accountant on return on investment.
It is recognised that regardless of which approach Tesco group adopts; the environment is a significant determinant both of strategy and organisational performance. Baker (1985, pg. 85) described it as “the ultimate constraint upon the firm’s strategy”; Drucker (1969), referred to the environment of the 1960 and 1970s as “age of discontinuity”; and Toffler (1970, pg. 28), who look ahead, referred to it as a time of “future shock”.
2.1. MARKETING AUDIT
The marketing audit is really the launching pad for the Tesco marking plan, because it encourages Tesco management to reflect systematically on the environment and the organisation’s ability to respond, given its actual and planned capabilities.
Similar to financial audit, marketing audit is first and critical about developing a shared, agreed and objective understanding of Tesco organisation.
The audit is has suggested by McDonald (1995, p.28):
“The means by which a company can identify its own strengths and weakness as they relate to external opportunities and threats; It is thus a way of helping management to select a position in that environment based on known factors.”
Three major elements and potential benefits of the marketing audit can be seen to be:
The detailed analysis of the external environment and internal situation
The objective evaluation of past performance and present activities.
The clearer identification of future opportunities and threats.
These three above factors can be viewed against the background of comments made by Ansoff (1968 & 1984), who has suggested that “irrespective of the size of the organisation, corporate decisions have to be made within the constraint of a limited total resource”.
Marketing audit have a place the overall management audit that incorporate financial audit together with audits of other functional areas as illustrated in figure 2 below.
Marketing audit in terms of structure consists of three major and detailed diagnostic steps. That involved a review of: Tesco organisation’s environment (opportunities and threats) – designed to establish the various dimensions of the marketing environment, change and probable impact of these change upon the organisation; its marketing systems (strengths and weakness) – an assessment of the extent to which Tesco‘s marketing systems are capable of dealing with the demands of the environment and its marketing activities – review of the individual components of the marketing mix.
There are the environmental variables and operational variables with distinction in terms of the macro-environmental forces (political / legal, economic / demographic, social / cultural, and technological) that affect the business. Micro-environmental actors (customers, competitors, distributors and suppliers) who subsequently influence Tesco organisation’s ability to operate profitably in the market-place
The objectives of such an analysis investigated how Tesco organisation formed its strategy in other to develop opportunities and protect itself against competition and other threats. This must be done in order to better design the strategy that the business will use to be able to compete with rivals within the same industry. It is important for businesses to determine the level of competition present within the industry. This will allow them to address potential risks before they even strike.
4.2. Cost advantage and differentiation
According to Baker (1985), a business positions itself based on its strengths and strength are categorized into two – cost advantage and differentiation. Furthermore, when these strengths are applied in either a narrow or a broad sense, it will result to three generic strategies – focus, differentiation and cost leadership strategy.
Cost leadership strategy means that the company is the low cost producer or provider of a certain quality item in a given industry. This kind of strategy is being implemented for two reasons and achieved through two ways. The first method and reason is to sale items at average industry price so that the company will be able to be more profitable compared to rivals. The second method and reason is to sale the products at below average industry price in order to gain market share. According to Baker (1985), a company that has the ability to produce or offer less costly products will be able to remain profitable for a longer period. It is important to note that this strategy targets a broad market.
From the generic strategies discussed above, Tesco is likely to employ two strategic options that are also likely to be primary market objectives of focus on market development though partnerships and diversification through new product development.
Tesco, the giant and most successful supermarket chain in the U.K., has a CRM system that is the envy of many. Tesco found, while looking at its customer base for a typical retail outlet that the top 100 customers were worth the same as the bottom 4,000. It also found that the bottom 25% of customers represented only 2% of sales, and that the top 5% of customers were responsible for 20% of sales. Like many other companies that have embarked on CRM programs, Tesco realized that all customers are not equal and Tesco now measures valuable customers by the frequency of purchase and value of expenditure. Hunter (1997) argued that “marketing success needs to be based on the development of a loyal customer base, ensuring product and………..to be rethought.”
When Tesco says, "Every little helps", it really means it. Its CRM program is certainly one of the best in the world, and customers love it. Tesco has been principally a food retailer in the U.K., in a mature market that has grown little in the last 20 years or so.
That Tesco has grown its business at all is a testament to consumer attraction, when the only route to growth is taking market share from competitors. Its CRM program started with the Clubcard in 1995, offering points on purchases and giving a small rebate to loyal shoppers. Dismissing the initiative as nothing new, competitors did not realize that Tesco was capturing valuable information with every swipe of the card and building a powerful database of customers, which it gained through card membership information.
The card provided Tesco with vital customer information such as what products they were and were not buying, where they were spending their time in the store, and where they were not, as measured by spending. Customers received vouchers for items they liked to buy and offers to explore parts of the store that they had not yet seen. Different lifestyle magazines were created for different customers, and high-value customers got calls from the manager of the store, valet parking when they came to shop, and other special privileges.
In 1996 Tesco created a student card and another card for mothers, with offers suited to their needs.
5.3. Market Development Strategy:
Joint Developments and Strategic Alliances by entering new markets like China and Japan it can serve as a key growth driver of the company's revenues and expansion strategy. Tesco's interests in Japan are likely to continue growing in due course, as Asian markets are showing an increase in consumer spending and increased trend towards retailing. Competing for industry (Asia market) foresight by identifying how the market will or can be encouraged to develop. “The trick” by Hamel and Prahalad (1994, pg.73) suggest, “Is to see the future before it arrives”. These new markets are also demographically high opportunity markets.
5.4. Strategic Option
One of the suggested strategic options for Tesco is in international alliances with the local retailers in Asian markets. It is considered as a method of development and may be formed to exploit current resources and competence. By entering into joint ventures or partnerships, in order to gain a larger economy of scale and larger market presence; Tesco drew on the extensive local knowledge and operating expertise of the partner whilst added its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers.
The success of the partnership will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability is concerned with whether a strategy addresses the circumstances in which the company is operating. It is about the rationale of this expansion-market development strategy. The acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility is regarded to whether Tesco has the resources and competence to deliver the strategy.
Tesco utilized Porter for improvement of their strategic management and corporate strategy. The company implemented Porter’s Generic Strategies which targets a broad market and aims that present customers with products at a low cost for a given level of quality. The industry sells its products at average industry prices to earn a profit higher than that of rivals and below the average industry prices to gain market share hence become a leader.
In the event of a price war (see appendix 8), the Tesco maintained some profitability while the competition suffers losses. When there is no price war, as the industry matures and prices decline, the firms that produce more cheaply remained profitable for a longer period of time.
Although, Porter provided Tesco a comprehensive strategic management model that served as a guide in it’s achievement, the company’s goal in being the largest retailer globally, Porter’s model still considered limitation at some extent: (a)Consumers, competitors and suppliers are not similar therefore they should not interact and may contradict each other. (b) Barriers that may be created because the source of value are at structural advantage. (c) Letting participants inside the market plan for the behaviours of their consumers may still result to low performance and uncertainties in the market.
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