Marketing Analysis of Tesco
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An organization orientation depends upon the marketing concept and the market orientations, which are the foundations of strategic marketing. Marketing concept exists on the fusion of all marketing activities. When they are combined, the company can achieve higher profitability (Hooley 2008: 6, 7). Tesco has developed a strategic customer relationship management which builds and keeps a valued customer awareness and powerful brand engagement. Its position in UK is strengthened by overtaking Sainsbury in 1995 and by its online home grocery service (Jobber 2010:583).
2. MARKET SEGMENTATION, POSITIONING, TARGET MARKETING
Market segmentation is the process of understanding the characteristics and demand of different individuals. Tesco gather customer information from the loyalty card scheme and identifies their purchasing habits and behaviour patterns, which are used for segmenting customers based on their needs. Customers are grouped based on their similarities. With this information, Tesco introduced different clubs like the kids club, the food club, the baby and toddler club, Healthy living Club. Market segments are chosen for targeting and a marketing mix strategy is selected for that target market (Jobber 2010:262,584).To develop an effective strategic marketing there should be an upstanding positioning of product and services in the market. Positioning is an iterative and vital process in retail marketing. The main goal of positioning is to develop and maintain a remarkable place in the market for the company and its product. Positioning starts with the product (Kalafatis 2000).Nevertheless, Tesco has a brand image and they are proud of its brand value ( Martenson 2007).Keys to successful positioning is clarity, consistency, competitiveness and credibility. Repositioning is carried out when customer needs or target market changes. Repositioning strategies include image repositioning, product repositioning, intangible repositioning, tangible repositioning (Jobber 2010:285,288).
3. MARKET ORIENTATION
Marketing orientation is achieved by marketing concept (Blois 2000: 21). It is defined as all the departments working together to develop and understand customers current and future needs and to meet them to keep the customers satisfied (Hooley 2008: 8). The elements of market orientation include Customer orientation, Competitor orientation, and inter functional orientation.
4. CUSTOMER ORIENTATION
Marketing oriented companies are primarily focused on customers. They get the needs and problems of their customers and find a better solution for them (Blois 2000: 22). Tesco strategy is based on loyalty card scheme and gets information about individual customers and their different needs. The club card helps the customers to save their money when they accumulate points in the card. Club card can be used at any Tesco's partners (Jobber 2010:583). Tesco's objectives and guidelines are aimed directly at customer satisfaction and it is assessed regularly (Hooley 2008: 11). Customer orientation depends on the employee performance. It results in positive outcomes of the company. It determines the relationship quality of the organization and relationship quality highly depends upon the company loyalty (Macintosh 2007).
5. COMPETITOR ORIENTATION
The organization should identify the short-term and a long-term capability of the competitors. A deep understanding of the competition is needed. For Tesco the competitive positioning applies at the level of the companies. In UK the leading grocery retailing competitors include Tesco, Sainsbury's and Asda (Hooley 2008: 208).We need to understand the competitors profit sources, position in the market, marketing strategies (Best 2004: 7).Tesco collects information about the activities and conduct regular benchmarking against the competitor offerings (Hooley 2008: 12).
6. LONG-TERM PROFIT FOCUS
This is the ultimate objective of all the business. "The main objectives of Tesco are to be a successful international retailer, to be strong in non-food as in the food business, to open more stores across the world. The International strategy of Tesco requires a long-term approach" (Tesco PLC 2009).The decisions of Tesco are guided by long- term plans rather than short -term benefits (Hooley 2008: 12).
7. INTERFUNCTIONAL COORDINATION
Interfunctional coordination concerns with the coordination of all company resources to create a value for target customers. To create an impenetrable competitive position, we have to rely on the coordinated efforts of various functions and people within the organizations. Cross-functional relationship plays a decisive role (Hooley 2008: 12). Tesco has a dedicated team approach to develop and deliver market-based customer solutions (Best 2004: 48).They work together and support each other to serve customer .The financial and management department work closely with the operators of the retailer world. Commercial departments make decisions to deliver best products at best possible prices. Corporate purchasing departments work with suppliers. The graduates in Tesco strive to generate revenue. Distribution team works to deliver products in the right time to different stores. The effective systems IT department improve online shopping for customers and they raise the contacts between various business areas to streamline the entire processes. The marketing team of Tesco works with customers to understand their needs and current trends. The property and engineering department do all the support works of the stores (Hooley 2008: 12).
8. ORGANISATIONAL CULTURE
Marketing orientation can be described as a variety of organizational culture that places the highest priority to establish and maintain the best customer value while considering the interests of stakeholders like investors, employees, suppliers (Blois 2000: 21). "The core purpose of Tesco is to create value for customers to earn their lifetime loyalty" (Tesco PLC 2009). All the staffs work like a team .They gives respect each other and treat customers in a way they feel satisfied. Face to face meetings, trips are conducted and Staffs are rewarded for their work they do. They offer discounts and benefits for the staffs also provide more salaries, training, flexible working hours and health and safety measures are observed as compared to other retailers. Tesco welcomes all people regardless of age, sex, ethnicity etc. Human rights policies are applied to all members (Tesco PLC 2009). Store Loyalty is the output of customer satisfaction and customers will visit the store regularly. All employees understand their responsibilities to create satisfied customers (Martenson 2007).
9. TESCO STRATEGIES
Tesco has a well-established strategy for their business success. About 70% of the trading and profit is from UK. They are the market leaders in markets outside UK. They have four different store formats like Express, Metro, Superstore, Extra and one trial format Home plus, for non-food and clothing. As an international retailer, they mainly focus on the local customer needs and understand them. They make sure the board appeal. They have various own brands of superior quality to customers to compliment their style of living. Tesco looks after the people working with them (Tesco PLC 2009). Market Corporate responsibility is an opening for growth. "The values are the no one tries harder for customers and treat people how they want to be treated" (Tesco PLC 2009). The Tesco steering wheel represents performance and is a strategy-driving tool. (Tesco PLC 2009).
A sale in non-food is a key part of the strategy. They provide with the best quality and price. Tesco's non-food includes electrical, home entertainment, clothing, health and beauty, stationery, bookshop and soft furnishings, seasonal goods, opticians and pharmacies (Tesco PLC 2009). In retailing services, Tesco offers more to the customers. Tesco personal finance has products from credit cards to insurance. Online grocery shopping is made effortless with Tesco.com. Tesco Telecoms offers a wide range of services from "mobile network, home phone service, internet access and an internet phone service" (Tesco PLC 2009). The Success of Tesco depends on trust and satisfaction of the customers. Overall, Tesco has a strong marketing orientation and compelling marketing strategies which results in the customer satisfaction and the higher levels of profitability." Every Little Helps Tesco to be a market leader" (Tesco PLC 2009).
10. COMPETITIVE ADVANTAGE
As Armstrong (2005) defined, competitive advantage is the advantage over competitors obtained by providing better value to customer. It is important to company who wants to win the customers and establish a profitable relationship with them (Armstrong & Kotler, 2005). Before the organisation is choosing the right competitive advantage on which to build up its competitive strategies it must analyze the industry environment normally by using the porter's 5 forces analysis.
11. Porter's Five Forces Analysis
Introduced by Michael Porter in 1979, Porter's 5 Forces is a powerful tool to analyse the attractiveness of an industry. This framework involves a relationship between competitors within an industry, potential competitors, suppliers, buyers. It helps management to understand both the strength of the current competitive position, and the strength of a position organization want to be. (Michael Porter, 2008) A diagram below shows the Porter's 5 forces clearly.
12. Threat of New Entry:
As porter said the ability of people who newly enter your market might affect your power. If the barrier to entry the market is low and your have little protection for current position, then the new competitors can easily enter the market and weaken your position. (Michael Porter, 2008). In terms of new entrants Tesco does not have much threat because of the high barriers for new comer to entry into the supermarket industry. According to the TNS (Taylor Nelson Sofres, the leading market research group) data Tesco occupies over one third of grocery market share in UK, and is along with Asda, Saintsbury's, Morrisons become the 'big four' which has hold over 68% of UK overall grocery market. This strong solid position makes Tesco the market leader and giant in UK supermarket industry. Due to the massive market share has been hold by the 'big four', the barriers for new entrants are obviously quite high. It is hard for new retailer to obtain the market share and challenge the existing powerful player such as Tesco. In addition, another high barrier for new entrants is the supermarket industry needs huge capital and personnel involved but needs long time to get the return. Therefore, there are high barrier for new retailers entry into the existing supermarket industry dominated by 'big four'. Thus, if Tesco sustains its strong position in the market it will have less threat from new entrants.
13. The power of buyer:
According to Porter the buyers have the power to drive price down. Small number of buyers and powerful buyers for a company can likely having greater power on driving the price (Michael Porter, 2008). Generally say, in supermarket industry there is little bargain power for buyers with supermarket because all the prices are fixed price. Moreover, the bigger number of consumers will reduce the power of buyers. Therefore, it is little power of buyers to Tesco due to huge number of customers and little bargain power of buyers in this industry. However, customers can still switch buying from one supermarket to another by many factors. First, the price is the primary factor determinates customer's buying activities. In this respect, Tesco's strategy is based on its cost advantages. The organization aims to be the best value retailer. Tesco stated its price has been cut by 17% between 2000 and 2006; even facing the higher energy price challenge during the recent recession Tesco's price has been dropped down by 1.8% last year. Second, due to the differentiation of product is little in the supermarket industry; customers can switch buying easily, thus, to attract and keep customers is relying on their loyalty to the store. Tesco's report claims it has the UK number one loyalty card scheme and it has over 13 millions active Clubcard holders. Overall, the power of buyer is little to Tesco and Tesco has big advantages on low price and customer loyalty.
14. Power of suppliers
Porter said the suppliers also have power to drive up the price. The power of driven is determined by the number and the strength of suppliers. To the Britain biggest grocery supermarket Tesco, the power of supplier is very little because Tesco has vast numbers of supplier across overall markets. The overwhelming market power of Tesco makes suppliers have no bargain power to it; instead, some of suppliers rely on Tesco. As a buyer Tesco has huge demand and great power to the supplier. However, Tesco also relys on their suppliers to achieve its objectives, without those suppliers Tesco could not deliver best value goods to the customers. Therefore, Tesco has established the long term constructive partnership with suppliers. According to Tesco's report, it has over 1,500 suppliers who have been working with Tesco for five years or more. Based on a survey taken in 2008 by Tesco, there were over 90% of UK suppliers thought Tesco was trustworthy. Moreover, Tesco also provide the opportunities to small producers and local suppliers. For example, Tesco has opened five new regional buying offices around Britain and hosted regional road shows to attract and increase the number of local suppliers for selling their goods through Tesco. As the result, the small suppliers get more business opportunities meanwhile they help Tesco getting hundreds of new lines into stores. In sum, Tesco has little threat from power of supplier and company achieved its objectives by establishing the trustable partnership with suppliers.
15. The Threat of substitutes
Porter introduced this threat as the other industry or business has the ability to substitute you and attract your customers. Although Tesco has head position in the supermarket industry, somehow, the substitutes still exist. For example, eating-out is a substitute to buying food from supermarket. However, a recent survey by analyst Buckingham Research has found that 75% of British families will stay at home during the recession rather than eating out. Under recession, the threat of eating-out to supermarket is less than ever. Another substitute worth to be considered is the online shopping. Nowadays, as the technology growing fast the online shopping becomes easy and trendy. However, it can not completely substitute the real life shopping especially for the food purchase. The technical problem, delivery problem and communication problem may bother people to buy online. Moreover, the real life shopping is also a part of social life to most of people, which would be simply substitute by clicking screen. In sum, the threat of substitute to Tesco is higher than buyer, supplier and new entrant.
16. The Threat of Competitive Rivalry:
This threat comes from the competitors and also is affected by the new entry, substitute, power of buyer and supplier. The threat of competitive rivalry to Tesco is high although it is the largest grocery supermarket in UK. Asda, Sainsbury's and Morrison are the three main competitors of Tesco. These three companies also have big portion of market share and compete with Tesco through price, product and promotions. The competition between the main grocery supermarkets remains fierce. Tesco has been reported that the market share has been losing and dipping in UK market since 2009 by many main Medias such as Times, BBC news and Guardian. Reports said according to the last figures of 2009 Tesco's market share dropped from 31.3% to 30.7% of UK grocery sales. Meanwhile, Asda's market share rose to 17 % from 16.7 % and Morrisons' went up to 12.1% from 11.7 %. TNS reported against the UK grocery sales rise 6%, Tesco's sales rose 4% which below the market growth. However, Morrisons and Asda were all found beyond the growth of the market, seeing sales rise 9.7% and 7.2%. Moreover, the discounter supermarkets Aldi and Lidl also compete with Tesco as consumer cut back on spending during the recession. In addition, TNS also claimed that Waitrose, the John Lewis-own supermarket as the up-market grocer is fast growing in grocery market. On the other hand, because Tesco also set foot in non-food industry there are so many competitors such as Shell, BP, Amazon, O2, etc. To sum up, Tesco has highly threat from many competitors in both food and non-food industry. Therefore, Tesco must take its competitive advantages to prevent from threats of competitors.
17. Competitive Advantage of Tesco
Through the porter's 5 forces analysis the competitive advantages of Tesco can be outlined. First, the significant market power is the big advantage of Tesco. The great market power makes Tesco is able to put up barrier to new entrants and weaken the power of buyer and supplier; it also gives Tesco ability to beat the competitors. Second, namely cost advantage, the big economic scale enables Tesco to reduce the cost at extremely low level and thereby providing the low price to customers. Third, diversification makes Tesco has a further advantage to win the market because Tesco expands the broad markets such as financing, telecom and retail service rather than just food market and spread its business worldwide. To sum up, if Tesco follows its competitive strategy by aware of the threats and competitive advantages, it will keep the strong position in the industry and beat its competitors.
18. MARKETING MIX
Firstly, the term 'Marketing Mix' was widely adopted after Neil H. Boren published his article 'The Concept of the Marketing Mix' in 1964, where he described marketing managers as a "mixer of ingredients". The ingredients in Boren's marketing mix included product, planning, pricing, packaging, branding, distribution channels, personal selling, advertising, promotions, display, servicing, physical handling, fact finding and analysis. Which was later grouped into four categories by E. Jerome McCarthy, today know as the 4P's of marketing, shown below
However, some people argue that along with the Marketing Mix 4 P's concept, we should add another 2 P's, which are people and packaging.
It is rare to discuss price without the presence of a product and to enable us understand the link between Price and Product. Kotler & Armstrong (2006) define a product as anything that can be presented to a consumer for attention, acquisition, use, or consumption that might satisfy a want or need. They further define a consumer product as the product bought by the final consumer for personal consumption. According to Ferrell (2005), the product is the core of the marketing mix strategy in which retailers can offer consumers symbolic and experiential attributes to differentiate products from competitors. However, it is also concerned with what the product means to the consumer. Product is about quality, design, features, brand name and sizes (Borden, 1984). Wulf et.al. (2005) found that private label products could offer even better quality than national brands but at a lower price. The domestic competitor reacts to the intensifying price competition by engaging in selective price changes. A product is a physical good, service, idea, person, or place that is capable of offering tangible and intangible attributes that individuals or organizations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value to acquire it. (Blythe 2007)
Core products: Core Products are the core benefit that is being sought by the consumer by buying the product, like the cheaper call rates and ease of recharge top up available to Tesco Mobile customers. Actual /Tangible products: Actual Products are all the tangible features/benefits that are associated with the core product such as its features or design, level of quality, packaging, size. There is no clear distinction between a "pure" tangible product and a service. The Tesco's give away deals for the new 3G i-phone deal Augmented products: are the intangible features/benefits associated with the core & actual product such as the branding, warrantees, delivery, guarantee, and after sales service. Tesco mobile, for example, is a tangible product, but it often comes with a warranty and software updates. A firm'sproduct line refers to the variety of similar commodities that the firm holds, Tesco for example, makes a large range of inter-related goods, Many of Tesco stores stock over 40,000 product lines. Even a Tesco 'Express' stores stock a choice of well over 2,000 lines.
ProductDepthrefers to the variety of commodities offered within each product line. Tesco stores stock : Healthy Living products, Free From products for people with food allergies and intolerances, Special healthy Kids snacks and Organic product lines and the recent announcement by the Tescobank CEO Benny Higgins of plans to launch an assault on the mortgage market by the end of 2010, hoping to take advantage of the current problems in the sector. Targeted at providingTescocustomers with financial advice, car and home insurance credit cards, mortgages and current accounts.(MINTEL 2009).
Products often go through alife cycle.Initially, at the introduction stage a product is launched. Since the product is not well known and is usually expensive (e.g. the , as). Eventually, many products reach agrowthphase where sales increases dramatically. More firms enter with their models of the product, sometimes with added innovations. Unfortunately, the product reaches amaturitystage where little growth is sighted. For example, in the UK, almost every household has at least one stereo sound system. Some products may also reach adeclinestage, usually because the product is swapped for something better. For example, CDplayers experienced declining sales as more consumers switched to MP3 players and i-pods.
Ansoff Theory is a series of suggested growth strategies that set the direction for the business plan. illustrated below Market Penetration: here the business strategy focuses on selling existing products in existing markets.This strategy aims at four major objectives:
- Maintaining the market share of current products
- Securing growth market Dominance
- Drive out competitors with support of an aggressive promotional campaign and favorable price strategy
- Increase product usage by existing customers e.g. With the Tesco Loyalty Club card scheme.
Market Development: here the business strategy seeks to sell its existing product into a new market. The various approaches to this include:
- New geographical markets e.g.- exporting Tesco UK products to the Express shops in Ireland and Malaysia
- New Product Dimension or Packaging
- New Distributional channel
- Implementing different pricing policies for different markets segments
Product Development: refers to a growth strategy where new products are initiated in existing markets. This often requires development of new competencies in the case of Tesco Bank and its new job vacancies for competencies in the financial sector. Diversification points to the growth strategy where a business markets a new commodity in a new market. Unfortunately, for this strategy to be adopted a clear objective of its advantages should be explored and risk assessments carried out seeing as the business may have little or no experience in the new area. Roughly one quarter of Tesco's sales, was own label. Many leading retailing companies have substantial grocery interests. Of the top 25 companies in 1978, 22 were involved in groceries retailing, of which 10 can be considered leading firms in the groceries sector [Akehurst, 1983: 169, Table 5]
20. Price :
"Price refers to the value assigned to something by the seller to something purchased, offered for sale, to a buyer as their willingness to pay for the product and services delivered" (Gilbert 1999). Price is the only element in the marketing mix that is revenue generating- all of the others are costs. It should therefore, be used as an active instrument of strategy in the major areas of marketing decision making. Pricing in the international setting is more complicated than in the domestic market, because of factors such as government influence and additional costs (Becker and Thorelli 1980). The price of an item is an important influence on the value of sales made. In theory, price is really determined by the discovery of what customers perceive is the value of the item on sale. Recent research has shown that demand-based pricing is associated with higher retailer gross margins; whereas past price dependence is associated with, lower retailer gross margins (Nijs, Srinivasan, and Pauwels 2007). There are a number of pricing policies used by Tesco today, which include:
21. Market-led Pricing:
also known as competitive pricing, this simply accepts the price which competitors are charging for a product and then price its product at the same level or slightly lower in order to gain some advantage over competitors. Significantly found in markets where there is close competitors. For a company like TESCO it is important to monitor other competitors and in order to maintain customer loyalty against discounters, the adoption of a more aggressive pricing strategy was launch by the advent of budget private label ranges and backed up by advertising focusing on price comparisons. Despite challenges due to rising energy prices, but with innovations such as the reusable plastic trays, which was introduced in the fresh food areas have helped make savings - these savings are pass on to customers. According to the OFT this led to a fall in real food price between 2000-2005.as shown below
22. Cost-Based Pricing:
also known as 'cost plus Pricing', involves working out the business's total fixed and variable costs and then adding a percentage of profit. Here the business has to consider the total number of items that it plans to produce and sell. The big advantage of cost-based pricing for TESCO is that the company is guaranteed to make a profit on its sales since it has covered its costs. However, in operating cost-based pricing it is very important to be aware of competitor's price. However, this poses a threat when businesses are unable to sell the expected quantity of the product, perhaps because competitors are offering the same goods at a lower price.
23. Price wars
In a competitive market such as grocery market, businesses sometimes engage in price wars in which prices of some goods are slashed to a very low price in order to secure sales. Price wars swamped grocery retailers, as the switch to private labels from branded packaged food continued to gather pace. For instance, Tesco and ASDA propose freezing of tax on some products at 15% despite an increase in rates to 17.5%(MMR 2010) This is risky because advantages gained are short-lived and rival, businesses tend to respond by slashing prices even further. If pursued long enough, price wars would cut profits seriously and in the end, only customers benefits by the low prices.
24. PENETRATION PRICING
25. ECONOMY PRICING:
Stores such as TESCO, which allegedly charge the lowest prices, attract many consumers based on this conception alone (Peter & Donnely, 2007). Among retail stores, the pricing strategy has become the fundamental point, as they need to compete in terms of pricing to lure more customers. Berman (1996) added that among the pricing policies which are of major concern to retail store outlets are the 'High-Low Pricing' and Every Day Low Pricing (EDLP) strategies. This is sighted in operators who have significant economies of scale and buying power (Gilbert 1999).
26. VALUE PRICING
This ensues where external factors such as the recession or increased competition forces companies to provide 'VALUE' product and services to retain sales, they are especially important to families on a budget and have made a significant contribution to making healthy food accessible to all. Tesco now has in store 95 fresh fruit and vegetable value lines, and are working with the Pre-School Learning Alliance to help parents and children in some of the UK's most deprived areas make healthier choices. Value pricing may have a negative impact on the profit margin of the company (tesco.com N.D).
27. GEOGRAPHICAL PRICING
This is evident where there are variations in price and demand in different parts of the world. TESCO's prices are a little higher in some town centre and neighbourhood stores because of higher overhead costs (mainly rents and rates). These costs are spread over a smaller volume of sales, and can only be recovered by charging prices that are, on average, higher. Example was when Tesco first moved into Ireland the products it sold was more expensive than they were in their UK stores (Irish Times 1998). This was because the UK suppliers were charging the Ireland stores more than they were charging the UK stores. This triggered some conspiracies and allegiances between key stakeholders in the industry resulting in a widespread anti-Tesco campaign (Poole and Clark 2002).
Pricing a product too high or too low could mean a loss of sales for the organization. Therefore, appropriate pricing strategies and policies should be put in place for the various market segments, to ensure
Significant 'P' in Marketing Mix "4P" (Product, Price, Promotion and Place). Although the "4P" characterization has led to widespread use of the term promotion for describing communications with prospects and customers, the term marketing communications is preferred by most marketing practitioners as well as by many educators. Consider that we may want to use marketing communications to refer to the collection of advertising, sales promotions, public relations, event marketing, and other communication devices. Promotion is considered as Sales Promotion (Shimp 2007). Marketing Communication is used by organisations to communicate with customers with respect to their product offerings. In this sense, Marketing Communication is one side of the communication process with customers. Market research, in which suppliers seek to elicit information on consumer requirements from consumers, is the complementary component of the communication process. The following summarises this very simply: (Rowley 1998).
According to Rowley (1998) producer should communicate to reach the customers and in turn should listen to the customer's needs and requirements to enhance the product and service. Tesco proudly announced that one of the reasons to its Success is listening to their Customers and its suppliers. Tesco has adopted multiple qualitative research techniques to reach their customers such as focus groups, accompanied shops, home visits to collect the feedback and respond quickly with corrective measures. Modestly they say, "Its simple - we listen and respond, providing customers with what they tell us they want". (Tesco Website).
Tesco is well known for Customer focus.
Marketing Communications Mix also know as Promotional Mix consists of Advertising, Personal Selling, Sales Promotion, Direct Marketing, Internet Promotion and Publicity.
29. Marketing communications Mix strategies:
Figure 10:" Promotion and marketing communications in the information marketplace".
30. Push Strategy:
A promotion strategy that calls for using the sales forces and trade promotion to push the product through channels. The producer promotes the product to wholesalers, the wholesalers promote to retailers and the retailers promote to consumers (Kotler et al. 2005).
31. Pull Strategy:
A promotion strategy that calls for spending a lot on advertising and consumer promotion to build up consumer demand. If the strategy is successful, consumers will ask their retailers for the product, the retailers will ask wholesalers and the wholesalers will ask the producers" (Kotler et al. 2005). Push Strategy aims at Intermediaries, its make good use of Sales promotion and Personal Selling. Pull Strategy aims at direct customers, its make good use of Advertisements.
This Advertisement is about promotional offers at Tesco for Christmas, It states, "everyone could enjoy a finest Christmas at Tesco" with an affordable range of products. Advertising is a paid form of non-interactive showcase of products and services to the consumer through print media or other common advertising channels (Rowley 1998). Advertising for Tesco was done by Personalities like Prunella Scales and Jane Horrocks. Tesco understood that during recession, customers are willing to pay less for the goods and it has promoted its on low-prices goods. Tesco understands the customers needs, communicates through advertisements, sales promotions and person selling to the target market, its gives the information on their products. Tesco has adopted different promotional schemes and strategies to be the market leader. Tesco likes its competitors has transformed itself into different kinds of promotions, advertisements to get the attention of the consumers and retain them as loyal patrons. Tesco has supported different promotional strategies, which they believed to be profitable, mainly those with less cost. The prominent technique used by Tesco is low price campaign.
33. Advertising Models:
- Attention: aims at making customer aware of the product.
- Interest: Developing an interest in the product.
- Desire: Making customer think that he needs the product.
- Action: Purchase is made.
"Designing communication strategies is important to identify whether the objective is to draw to attention, cultivate interest, stimulate desire or provoke action"(Rowley 1998).
Figure 12:" Promotion and marketing communications in the information marketplace". From the above objectives, AIDA is strongly recommended (Rowley 1998). According to Rowley (1998), a communication strategy should have a message and it should go along with its communication objective. The message should reflect the unique selling proposition (USP) of the products. The organizations should concentrate on elements of the message that need to be considered are Content, Structure, Format and Source. Importantly these Advertisements should be target oriented; the Organisations should often have a strategy on the market to target.
Impact of Advertisements:
- A good communication strategy would yield results per expectations.
- It should be market oriented and should reach market without any cost to the market.
- Directives would create an impression on customers about the product.
Positives of Advertisements:
- It can create awareness in the targeted market.
- It can reach markets far and wide.
- Positioning of the product and Brand image could earn customers trust.
Negatives of Advertisements:
- It cannot answer the customer queries.
- Always may not provoke customers to purchase decision.
- Too many Advertisements may cause audience loose concentration.
34. Personal Selling
According to Baker (2003), personal selling can be defined as the personal contact with one or more purchasers for making a sale. To be effective, marketing management needs to integrate personal selling with other promotional elements, with other organizational functions such as distribution and production, and with the customer and competitive structures prevailing in the market.
Different stages in Personal Selling (Kotler, 2005):
- Generating leads and identifying prospects
- Pre-call planning
- Overcoming objections
Baker (2003) defines that Personal selling is a two-way approach and it employs push strategy and is relatively expensive per contact and according to a 2001 survey, the average cost of an outside salesperson is in excess of 55,000 pounds per annum. The actual time spent on face-face customer communication is typically around 20-30 per cent of working hours.
Sales management issues:
- Selection of sales Team
- Leadership and supervision
- Evaluation and control
Management plays a vital role to implement the strategies successfully, for any organization its employees are valuable assets. Tesco demonstrated this by taking care of employees, Tesco encouraged Employees involvement in Work-related meetings, as it is the employees; improve the performance of the organization. HRM plays a critical part as they should motivate and treat employees as champions, motivated team often yield positive results.Tesco has imbibed the personal selling traits and has the required trained sales force to implement.
Impact of Personal Selling:
- Efficient sales force often yield results
- Personal selling increases the customer's interest and desire on the product and it could lead to purchase
- Personal Selling should act as forum for answers to all the customers' queries
Positives of Personal Selling:
- High Interactive communication between the buyer and the seller
- Detailed product information and features
- Relationships can develop
Negatives of Personal Selling:
- Cost oriented Team
- Not appropriate approach towards thousands of prospective buyers
- Sales closure time could lead to customer dissatisfaction
35. Sales Promotion:
Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service (Kotler et al. 2005). As per the above definition, sales promotion offers reasons that would achieve immediate sales. It seeks to lure people to buy now.
- Price packs
- Advertising specialties
- Patronage rewards
- Competitions, lotteries and games
Impact of Sales Promotion:
- It helps to lure consumers and attract them from competitors
- Customers trying our products, giving a chance to retain them
Positives of Sales Promotion:
- Increase immediate sales
- Interim strategic tool
Negatives of Sales Promotion:
- Not for long-term usage, as customers may get used to this.
- Too much involvement into sales promotion may harm the brand image
It is a process which organisations adopt to distribute the products or services to the end user. Organisations must offer the product or service to the end user at a right place and right time.
Distribution of products or services can be classified into two categories
- Direct Distribution
- Indirect Distribution
Direct Distribution has producer directly providing the product to the customer. Indirect Distribution has intermediaries acting as a channel between the producer and Customer. In this context we would consider Place as Location, Tesco strategies on Place. Tesco has different types of stores to meet the customer needs, such as Tesco Extra, Tesco Metro and Tesco Express. At a store product position and reposition would make the product buyable, Products which are fast moving are placed at bottom counters and slow moving products are placed at distant aisle, it has a major role of influencing the consumers buying behaviour.
According to (E-strategy in the UK retail grocery sector: a resource-based analysis), With Technology reaching almost every home, Internet has transformed into a potential place/location for the producers to promote as well as sell their products and services. Tesco has reached its market much more using its online shopping site, According a research based analysis, it is found that around 1 million customers do online shopping on Tesco.com,
Impacts of online shopping tool:
- Customers are continuously updated using emails and websites.
- Customers can order products directly from home and can receive products at their doorstep, this helps in reducing carbon footprint.
- Customers can compare online prices and choose the best.
Advantages of online shopping tool:
- Online portal provides 24/7 shopping facility.
- Online shopping portal helps the organizations save staff costs, premises cost.
- It provides a channel to the producer to directly deal with customers.
Disadvantages of online shopping tool:
- Few Customers may not be willing to pay online due to security concerns.
- As competitors have their own websites, at times it is a potential risk of loosing customers.
- As there is no personal communication involved, customer quires would be unanswered.
37. SWOT ANALYSIS:
Strategic management a system or science formulating, implementing and to evaluate cross sectional decisions that helps an organisation to achieve its objectives" (David 2003:5) according to Porth (2003:3) " is a method of formulating, adopting and assessing cross-section results which permit firm to defined and attain each task ultimate to crease value". SWOT Analysis is an influential method for understanding your Strengths and Weaknesses, and also ways of looking at the Opportunities in an organisation and Threats that an organisation face in the future. In a business perspective, it helps an organisation to fine a sustainable position in their market for future changes. What makes SWOT mostly attractive is that, with a little attention, it can help Tesco to rediscover opportunities well place to take advantage of. Moreover, to know their company weaknesses of the market they are in. In addition, aim to get rid of threats that would if not catch up with the organisation unaware in the future. According to Barney (1991:99) " to obtain sustained competitive advantage by implementing strategies that take advantage of their internal strengths, through responding to environmental opportunities, while neutralising external threats and avoiding weakness" for a company.
Tesco focus on the global market of its professional techniques to mix the critical factors into success and to maintain its competitiveness together with other business portfolio such as financial services, electronics and exercising of scales operations with a good number of retail stores ranging from 692 stores in 2001 to 2306 in 2009 within the UK and globally market. Their range of stores are Tesco Metro and Tesco Express for customers accessibility, this give Tesco opportunity to deal with a broad range of products at substantial prices that attracts new and old customers. Its standard design and popular products range segmented for everyone has made them a world leading grocery retail, and a world leader in a market gives another opportunity to maximise more market shares in the future.
Retail Environment in the Eurozone
The Euro zone supermarket has been showing growth since 2008. In February 2008, Euro zone supermarket sales had a 1.1% growth to compared with February 2007 figures. However, Euro zone supermarket sales were stronger than they expected in March 2008, rising 2.2% to compare with the same month of the previous year. In April 2008, they had a 1.6% year on year growth. The food beverage and tobacco sector (FB&T) had a 0.5% rise in sales from March and non-food sales grew by 2.3% in the Euro market. FB&T sales had an increase in April at 0.7% year on year. In 2007 Euro zone posted a real GDP growth of 2.8%, due to the high increase since 2000 and is predict to continue to grow till 2011. This would enable Tesco to improve the profits as Europe is their primary market
Opportunities in Private Label and Non Markets
The private label market in the UK has been witnessing a strong growth in sales in UK retail industry. The total consumers packages goods such as food, beverages and personal care so in the UK, 36.7% of them were private label products, amounting to £42billion. Private label market is forecasted to grow to 40.2% by 2011 to an amount of £52billion. However Tesco could influence its strong portfolio of own brands to enhance its margins and also has the strengths to develop its market position in their industry. Opportunities in India and other international market will help increase their profit maximisation.
Changes in the external environmental can also be threats to Tesco, such as increasingly aggressive competitors in the home market for example Asda and Sainsbury.
Rising Labour Wages in UK
Due to the economy, downturn Labour costs has been rising in the UK. The UK government passed a law that the adult minimum wage rate would rise from £5.05 to £5.35 per hour in October 2006. The national minimum wage is likely to further rise to £ 5.80p an hour from October 2009 for workers aged 22 years and older. The rates from those 18 to 21 years would increase from £4.60 to £4.83 per hour and £3.57 per hour for all workers under the age of 18years. However, an increase in labour cost would harmfully to Tesco margins on the long run (Datamonitor 2009).
High Interest Rates in the UK The UK retail market was predicted to grow by about 15% during 2006 to 2011, a small decline was expected in 2007, growth in 2007 at 2.8% will be slightly lower than 2006's 2.9% and in 2008 due to the economic down turn the growth in 2008 was 3.4%. The high cost increase in credit resulted as a brake on consumer expenditure. Such as encouraging consumers to limit non-essential expenditure, mainly on deferrable big order, purchases and this could negatively affect Tesco's performance and the retail industry will experience intense distress in their market and support a continuous campaign of interest rate cuts to the government Intense Competition The retail industry in UK is mostly made up off Tesco, Asda, Sainsbury's and Morrison's dominating the sector, Tesco has been facing intense competition in the retailing industry from other supermarkets and other discount stores. It major competitors include Sainsbury and Asda, in addition to various small and local store operation. Tesco faces strong competition from Asda, which has the second largest retail market share in the UK. Competitive pressure in this sector is increasing up further with marks and Spencer's (M&S) and Waitrose coming up with expansion plans in the UK rural areas and city centre Difficult Condition in the International Markets The demand for Tesco products range and services depends on the world economy and political condition that is affecting the countries in which the group operates their market. Tesco's performance in most of Turkey, Central Europe and Ireland was offset by the economic down turn in Hungary. This however was a result of the strong economic measures taken by the Hungarian government, which reduce consumer expenditure. This affected Tesco's non-food range because of international law of a county (Datamonitor 2008)
Strength and weakness Since 2000, Researches prove that Tesco took over from Sainsbury's as the UK's largest supermarket; their brand name has been strength to Tesco supermarket. However, their international supermarket chain becomes the key strength to its supply chain management/ logistic that led to global integration/success. Tesco's present position in the retail supermarket with considerable share control over 35% has become a means of encouragement for continuity to maintain competitive advantage in the retail industry as a whole. Their lack of diversification to African countries is also their key weakness and also has a poor rating in reporting corporate social responsibility. (CSR)
38. Market Leadership
Tesco as a largest retail group in the UK had 26% share of the UK grocery market as of December 2008. They posted 56.1% of all UK supermarket shoppers in 2008. In October 2008, about 66.2% of online food and grocery where purchased online at Tesco. They operate on 3,262 stores. They also have about 30 distribution centres and also six of them are committed to non food and clothing. Tesco supermarket operates through multiple store system, such as Extra, and Metro. They have a strong market presence in South Korea as compared to its competitors in their industry. One of their major competitors Wal-Mart sold all of its 16 stores in 2007. Carrefour expands its operations in South Koreas in 2007. Wal-Mart and Carrefour was force to leave South Korean market due to their inability to provide to low price and quality products to the South Korean consumers. This also led them to fail to get more customers as it was slow to open retail outlets in the South Korean market, because Tesco has already made their profit through efficient and effective logistics. Tesco leading market position helps to increase its brand image, and enable them to have good economies of scale.
Strong performance of Tesco.com Tesco.com has become the largest online grocery shopping service in the world today. Tesco is the fourth biggest online retailer in the UK, behind Dell, Amazon, and Argos. Tesco.com serves 850,000 regular consumers in the UK, such as households from both urban and rural areas. they gets more than 250,000 orders every week, they also present a digital download which gives consumers access to almost 60,000 DVD titles and games. Tesco Extra Online shopping has increasingly grown in attractiveness in the UK. Their online sales where forecasted from £10.9 billion in 2006 to £28 billion in 2011. However, the percentage in total sales is expected to increase from 4% in 2006 to 8.9% in 2011. This will help Tesco to serve new customer segments, and avoid investment in physical infrastructure and to earn better profits (Datamonitor 2007) Strong brand image Tesco has a remarkable brand image. This is related with good quality, trustworthy goods that represent value for money. They have innovative ways of improving the customer shopping experience, and its efforts in adding value through financial services have resulted in strong brand image in their industry. this give then a strong customer retention rates, that will enable Tesco to launch more product range under its own labels and gives opportunity to enter new market and product lines reasonably fast in returns (Datamonitor 2007) Weaknesses Tesco is deeply dependent on the UK market. They derived 76.6% of its total revenues from the UK, in fiscal 2009. 10.4% from the rest of Asia and 13% from Europe. One of their major competitors, Wal-Mart increases its revenues in international operations with 22.1%. However because of Tesco concentrate their operation mostly in UK and Europe makes them weak on their market conditions in their region and place them in a competitive disadvantage to their rivals, who has a larger presence in fast growing Asian supermarket (Datamonitor 2009)
Weak returns Tesco has posted weak returns in the last few years because of the economic downturn. Their return on investments, return on equity and return on assets, during 2007- 2009 were 16.8%, however one if its major competitors Marks and Spencer's recorded return on assets. Weak income reveals the inability of the Tesco management to organize assets in profitable avenues and might effect in decreasing investor confidence on their industry.
39. Competitive advantage
In conclusion, to move the company forward, Tesco will have to understand that competitive advantage in today's business. This is because almost all organisations are under continual pressure to advance their competitive position and boost shareholder value for the company. According to Warren Buffett, one of the world's greatest investors says, "that the trick is to look for firms that already have competitive strengths and that operate in areas that are not susceptible to big changes". They should look into consumer loyalty, because consumer loyalty is on the decline. Most consumers go where they can find the best products and services, on a right price. This might cause them in breaking off from a long term relationships with the supplier. Tesco should also keep an eye on their competitors, and try to understand their business ideas as it can give them a basis for reinvention. In addition, to conducting trade shows they can learn more about their consumers and competitors in their industry. This would be able to help Tesco to maximise their long-term profits for the future.
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