Tesco Value Proposition

INTRODUCTION

The purpose of this report was to critically evaluate the value proposition of Tesco Plc to its customers. Given information about the target customers of Tesco and even a PEST analysis of the company was done. Tesco Plc competed with big supermarkets to become one of UK’s best supermarkets ever.

1. DISCUSSION

1.1 Tesco’s Value proposition to its customers

“Companies that offer outstanding value turn buyers (“tryers”) into lifetime customers” ( Weinstein and Johnson 1999,p.4).

Some of the value driven strategies are

• Understanding customer choices
• Identifying customer segments
• Increasing competitive options(for example, offering more products)
• Avoiding price wars
• Improving service quality
• Focusing on what is meaningful to customers
• Improving brand success and

(Weinstein and Johnson 1999,p.5).

Tesco Plc is world’s third biggest super market (Sky news 2008). What would have made them reach this position? To compete the supermarkets like Sainsbury and Morrisons , there must be some talent behind.

Tesco Plc which started its life in 1919 when Jack Cohen started selling surplus groceries from a stall in the East End of London. By 1970s, Tesco was building a national store network to cover the whole of the UK, which it continues to expand to this day, while also diversifying into other products (Telegaph 2008).

As if now Tesco continues to dominate in UK. Why many customers turned to Tesco when they were happy shopping in Sainsbury and Morrisons ? How Tesco stole these customers from these supermarkets?

The answer to these may be value proposition of Tesco Plc to these customers. Understanding customers is what the most important thing in business today.

As in the lecture of “adding value” on week seven by Prof.Phillip Mutter, value proposition is “how we intend to create value for our customer?”

Value of one customer may not be valuable to another customer. The impact the supplier’s offer has on the customers’ own value chain.

Customers do not buy features, products or services but solutions to their problem.

May be this is what Tesco Plc is being doing. They might have understood customers more than Sainsbury and Morrisons do.

How Tesco offer value to customers?

Tesco in 1997 developed certain values some of them were:

• No one tries harder for customers.
• Understand customers better than anyone.
• Be energetic, be innovative and be first for customers.
• Use our strengths to deliver unbeatable value to our customers.
• Treat people how we like to be treated (Tesco Plc 2009).

Cutting down the price

Tesco studied that price can be one of the important factors which could bring customers to them. Tesco also maintained quality as the price cuts. Tesco made sure that no one could beat them in price.

“We have introduced bigger packs, representing even better value, on products like coffee, tea and bread – and have also added 60 new products to the Value range, bringing the total to over 200. On Tesco Value, we promise customers that our prices won’t be beaten” (Tesco 1999).

Use of ClubCards

Using clubcard was one of the top strategies used by Tesco in 1995 to understand their customers. As for most other companies, did not realise the importance of Tesco using the clubcards.

By the use of clubcards Tesco was actually stealing customers from other supermarkets.

Tesco gave clubcards to frequent shopping customers. With the clubcard, Tesco got every information they wanted. Tesco stored all the information about customer in the customer’s clubcard. Like what did they shop? How much they use to spend in a day? What product they purchase etc. Tesco then sends special offers to them.

Internet capture

By seeing that many customers were shopping online, Tesco also used to give values through internet. Delivering products to the customer’s door. Customers used to visit the website and order things like groceries, books, cds, furniture, videos and other items and also arranging personnel finance. All in all great value. (brandingasia).

Private label success

In the idea of increasing sales, Tesco thought to give more to existing customers in existing stores. Tesco started using private labels to sell the product with which they tried to give almost same quality of top brands with cheap price. Tesco labels it as “Tesco value”. Items which they sold using private labels were bakery, meat, ready meals, deli, dairy, HBC, wine and non foods. Many others too (corioliosisresearch 2004,p.20).

Porter’s value chain on Tesco Plc

As in the lecture discussed by Prof. Phillip Mutter, Porter’s value chain consists of five activities which are inbound logistics, operations, outbound logistics, marketing and sales, service activities(Lysons and Farrington 2006,p.102).

Inbound logistics include receipt of goods from suppliers, storage, handling and transportation and stocking. Tesco always tried to keep the customer choice in store. In Tesco, there is an opportunity to reduce the cost unfairly incurred by company and therefore preventing the cost being passed on to the customer.

In operations, Tesco maintains the tasks such as opening every day in accordance with trading hours, maintaining the shelves, and the stocks.

In outbound logistics, Tesco has home delivery service and also they increase the number of staffs at till to save the time of customers. Trolleys are arranged such a way that they are easily accessible.

In marketing and sales, Tesco issues clubcards as discussed above and advertise in news papers, radio, national TVs etc

Service activities include human resource and technological activities. In human resource management, Tesco trains the staff to do the job.”There are a number of ways we support our people to achieve this, be it through an Options Development Programme, offering an Apprenticeship or encouraging the studying for a qualification whilst at work”.(Tesco 2009)

In the technological, Tesco’s brand name gives the product vitality and with the start of internet shopping, Tesco can be the best to shop.

1.2 PEST Analysis on Tesco Plc

Political, economical, sociological and technological (PEST) analysis on Tesco Plc gives out the following results.

Political

Credit crunch usually leads to unemployment. As, Tesco being one of the largest and fastest growing supermarkets, more jobs are expected to be available in Tesco. Tesco politically, is facing a charge of driving out other retailers out of the competition. But under EU law, if an organisation has large market share can be dominant. Tesco to date has no charge legally of exploitation.

Economical

Economically, Tesco has not been badly affected when compared to others. Tesco has the brand name and all products cheap for all segments of the market. So whatever happens when Tesco opens the door, customers are ready to flow in.

Sociological

Sociological aspects for Tesco have also helped a lot. As the number of career minded persons like students from abroad are increasing in UK, ready meals are in demand to make the cooking easy. Tesco has also understood this segment too. Tesco has variety of products for such students.

Technological

Technological factors like internet are also friendly to Tesco. Customers can go online shopping in Tesco’s site. Tesco has also started carbon reduction programme. Customers are also encouraged to make low carbon choices.

1.3 Tesco’s Value proposition on Target customers

“The Clubcard database is helping us to give customers an even better and more focused offer: the mail-out at the end of February 1999 contained 80,000 variations of letter, offer and magazine, and issued £50m-worth of reward vouchers, together with £25m-worth of product coupons. By understanding customers’ shopping habits, we are now even better at targeting our offers to them” ( Tesco 1999).

Tesco created a student card and a card for mothers in 1996 which suited their needs. In 1997, Tesco direct service and financial services were added. Adding value also became mandatory, like expectant mothers were given the priority of parking outside the store, even personnel assistance to help them. In 1998, Tesco began to offer electricity and telecommunications products and services. By this time, Tesco had identified 108 customer market segments (brandingasia).

For middle-income with young children, Tesco has opened bank with jargon-free, customer friendly approach, coupled with its perceived low prices, has obviously proved a winner (guardian 2005).

Market share rose tremendously even customers are happy. Making nice use of technology, provided customers with great experience (brandingasia).

CONCLUSION

By looking into the value proposition of Tesco, it is for sure that it is going to be very difficult for any other supermarket to emerge. PEST analysis shows the company is still strong to compete politically, economically, socially and technically. Also Tesco is well aware of its target customers and doing well to them too.

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