International Marketing Strategies of Tesco - Report Example

INTRODUCTION: With the increasing globalization, the local markets are now changing into global markets and thus the international competition is getting intense. This increasing trend of operating at international level has forced the companies to considerably change the ways of doing business and adopt new perspectives to develop international marketing strategies in order to enter new markets and grasp their customers. This change has created technologically complicated and highly competitive environment, with which companies need to cope up. The report has presented the complete analysis of international marketing strategies and the various challenges faced by the UK based international supermarket, Tesco. It also incorporates the strategies used in setting prices, branding, segmentation and selecting locations for expansion in different countries. INTRODUCTION OF COMPANY: Tesco is one of the world’s largest retailers serving the nations across the world since 1919. It was founded by Jack Cohen who started its operations from a small stall in East End of London. Tesco serves its customers in various product lines with vast variety of products. It offers the outstanding shopping experience to its customers by providing extensive range of products from food, clothing, and groceries to compact disks and other home products. Tesco is a UK based company and currently operating in 12 countries including China, India, Malaysia, Kipa, Poland, Ireland, Korea, Lotus, Czech Republic, Slovakia, Hungary, and UK. Moreover, the company’s subsidiary, Tesco Bank renders services in the sector of retail banking and insurance services (Tesco, n.d.). Tesco is operating financially well, generating the net income of 1.92bn in GBP with over 537.78k employees around the world according to May 2014 (Financial Times, 2014). INTERNATIONAL MARKETING STRATEGIES OF THE COMPANY: Despite of the high competition in retail market, Tesco is operating well in a highly competitive field. Though, the strong competitors such as Sainsbury, Asda, and Morrison have created hindrances for Tesco to develop in the market, but Tesco managed to create the brand name and built its image internationally through the implementation of effective international marketing strategies. The company used the thoughtful approach to enter in different markets by incorporating different cultures and values according to the requirement of the host country. As the international marketing environment consist of various forces such as customers, culture and values, political economy, technology, resources and competitors, Company can either take standardized approach or adaption to local market approach (Czinkota, and Ronkainen, 2012). Standardization is referred to marketing the products at international level with a standardized marketing mix. This concept includes the concentration of mass marketing (Ghauri and Cateora, 2010). Whereas, Adaptation approach deals with the combination of standardization and customization which best satisfy the target customers as well as remain cost effective for the company (Schmid and Kotulla, 2011). This concept includes the concentration of market segmentation. In this case, companies strategies the process in order to fulfill the local customers’ needs. Tesco more focally concerned on adaption strategy. In addition, Tesco has adopted the diversification strategy so as to meet the needs of the customers by diversifying its product lines and hence attracting the wide range of customers. CRITICAL ANALYSIS OF THE INTERNATIONAL MARKETING STRATEGIES OF THE COMPANY: The global expansion of Tesco that deals in retail market is a complicated scenario due to the existence of strong competition all around the world in the retail market. Tesco has wisely dealt with the competition and meeting the requirement of the customers. Is has introduced the wide variety of products at relatively lower prices. It is the fact that customers preferences and tastes differs with areas and countries such as clothing, electronic goods, food consumption etc. Different cultures support the entirely diverse national preferences in specific product categories, for example, food or grocery products are widely a local product. As people from different culture have different tastes in food, they do not ever consume foreign food products. Tesco has considered these essential concerns and develop supporting international marketing strategies while expanding its operations in other countries. The company has targeted the under-developed retail sector to enter and develop the market with ease without the force of barriers. Customers with the high spending power are another concern while targeting the markets. Before entering into the market, Tesco has assessed the potential of growth in market and the extent to maintain the leadership in the market. While keeping these factors in concern, Tesco developed the international marketing strategy that is adaptation strategy. Tesco has taken into consideration the fact that every market is unique and different, and therefore requires the various approaches that match cultures and values of the host country. Being a retailer, it was beneficial to act locally in each market to satisfy every customer’s need. By implementing adaptation strategy, Tesco customized their products according to the local customers, local supply chains, local cultural values and local legal policies. As the whole global market cannot be targeted by a single format, it is essential to acquire a discounter approach all through and that is what Tesco did. The company maintained its focus on target markets and its factors to become a leader in the market. Moreover, Tesco believed in building relationships with customers and this approach helped them to create the brand image. Adaptation strategy served its purpose in every action plan developed by the company. However, Standardization strategy was not meant to be used in this market as countries already possess numerous competent retailers which offer the wide range of products that are according to the local customer preferences and tastes. So, standardization approach in this situation might have failed because people in certain product areas do not like to change their preferences. For example, people in China and Malaysia are reluctant to taste the foods that are commonly eaten in European region or in UK. Hence, for such countries, Tesco altered the product line of food by including the brands and types of food prevailing in China and Malaysia. By using the diversification approach, Tesco has enhanced the variety of its operations by expending in distribution sector and in service supply sector. For example, Tesco has started to operate in banking and insurance, communications, petrol supply, real estate sectors. These alterations and additional services have more reinforced the market leadership of the company and give an edge over its competitors. CULTURAL ISSUES, TRADING AND ENVIRONMENT CONDITIONS: Companies operating in various countries internationally come across many cultural and environmental issues. Different countries have unlike cultures, values, beliefs, languages, and perceptions that demands flexibility in the brand image to cope up with every culture and society. Similarly, Tesco has encountered many challenges regarding cultural diversity in different countries which resulted in social unrest and political instability among the people. The main concern was to maintain its focus on each cultural group prevailing in the targeted country by creating emotional connection with people. For example, culturally German people prefer to pack and bag their own products and purchases; this trait was identified by a research study conducted by Tesco before entering the market. Another example is Malaysian government has strictly prohibited the use of other language except English and Bahasa Malaysia in labeling or instructions. The language must be written in one of these two languages or else product cannot be sold. Moreover, government demanded to provide additional information on each product about its ingredients and HALAL certification, Nutrition labeling etc. Considering such issues, Tesco comes up with effective packaging strategies, specified to the country’s cultural values. With increasing number of stores, Tesco has developed numerous policies to handle the environmental issues by introducing recycling processes, bio-degradable packaging to minimize the waste and recycle where possible. From its production to its supply, Tesco has maintained an environmentally friendly state (Iyobosa, 2013). Issues regarding trade are also the most critical concern in global market. Recently Tesco has posted its profit fall in over 20 years due to trade restrictions in many countries. Company has accounted for 17.1% fall in trade profits due to restrictions in trade terms of Europe, US and South Korea. The countries’ government has banned trading on Sundays of two weekends of the month and restricted between 8am and midnight on the next day. This restriction has impeded its 24/7 trading process and resulted in huge losses to the company (Ruddick, 2014). INTERNATIONAL MARKETING MIX: When a company expands its business operations into foreign markets, it has to either adapt the marketing mix to match the country in which it is operating or use a standard marketing mix. Tesco has successfully adapted their all products and international marketing mix strategies so as to meet the needs of the local people. Product: In order to cater the international target market, company has to consider various factors to meet the needs of different people globally, which includes, different income levels, religious beliefs, cultural changes, purchasing habits etc. Tesco customizes their products and provides wide variety of products according to the culture of host country. There are around 40,000 products lines in most of the Tesco’s stores across the world. For example, in the Tesco’s food range, it offers the vast variety of brands, regional products, organic food, and international cuisine with around 40 healthy snacks for kids, 400 healthy living products, and 150 products lies in “Free From” range (Tesco, n.d.). It is focusing on product development and introducing many online products and other services such as, grocery delivery services, music downloads etc to satisfy the customers’ needs. Price: Price is one of the most important elements in marketing mix which influence the buying decision of customers and it is even more challenging on an international level. Pricing high or low could account for huge losses for the company. Tesco clearly understands that customers are price sensitive and always compare prices from other retailers and then make the buying decision. For that reason, Tesco thrives continuously to reduce its prices on all products in order to develop its strong customer base and gain customers’ confidence. Despite of the increasing energy crisis, it has succeeded to reduce prices by 1.8% in 2011 (SAS, 2013). In the past years, Tesco has integrated the concepts of competition and promotion by using the price strategies such as ‘Big Price Drop’ or ‘Tesco Price Match’. However, these campaigns failed to deliver the products at cost effective prices and resulted in decline in sales. Currently, the company is implementing the ‘dual pricing strategy’ in which prices of products (except those at promotions) will not be increased in order to generate higher profit (Sarah, 2012). Placement: Another major concern is how and where to distribute the product or service at the right time. Distribution is merely a process of moving a product from manufacturer to wholesalers and then to retailers but it is different when business is running in foreign countries as it may involve more parties according to the requirement of national market. While taking into consideration the profit margins and transportation costs, Tesco has investigated thoroughly every market before entering into one and entered with the centralized distribution strategy which means that Tesco introduces its own store in every country. With a large store network, company has divided its stores into six different formats that are differentiated by size and variety of products it offer and they are, Tesco Metro, Tesco Homeplus, Tesco Extra, Tesco Express, Tesco Superstores, and One Stop. Tesco Extra is the largest store which offers complete range of products but only 20% of customers can access this store, for that reason company has divided its stores into several small stores while considering the convenience of customers. However, Tesco Express and Tesco Metro exhibit 2-3% higher prices than its other stores (Ghani, N., 2012). Promotion: In order to enter into foreign markets, Tesco has implemented inspiring promotional strategies throughout in relevance with the cultural values of the country in which it is operating. By using television adverts Tesco create recognition in most of the countries, as advertising is always very influential to convey the message. Seeing the cultural preferences and tastes of the people, Tesco also draw on its adverts through DVD. Through advertising, it made its brand recognition across the world in few years. In addition, company applies other leading strategies such as in-store promotional strategies, offering great discounts to people to attract them, giving away free gifts, coupons or any other incentives. These intellectual approaches helped the company to increase its monthly sales. MARKET SEGMENTATION: Considering each demographic segment in the market, Tesco has divided its customers which are inclusive of lower, middle and upper income groups. Tesco has focused more intensively on different consumption habits in various regions to target its customers effectively (Steiner, 2012). Moreover, Tesco segment its market by using ACORN which defines the classification of living quarters. It is based on census data including geodemographic segmentation. By classifying the living habits and buying patterns, Tesco determines its local customers and offers products or services with suitable prices (Taylor, 2011). However, its competitors are failed to target broad range of customers like Tesco does. For example, ASDA targets lower-to-middle income people, whereas, Sainsbury’s aim is to target middle-to-upper income people. Such intensive market segmentation of Tesco has given an edge to its competitors. These advantages have been earned by offering incentive to customers such as discount rates, loyalty cards, free gifts etc. Hence, Tesco has successfully categorized its customers by using ACORN or demographic segmentation (Berman, 2006). BRANDING: Branding is referred to generate, control and influence the perceptions and associations of people so as to operate business effectively. Branding helps Tesco to stand out from other companies and add value to catch the attention of customers. Tesco has created difference and emotional resonance in customers’ minds by maintaining customer friendly environment. Brand attributes like low prices, easily accessible products etc have made easy to enter into new market while upholding its actual brand identity (Keller, Parameswaran and Jacob, 2011). Tesco is continuously thriving to add value to the company by introducing new services and products and directly communicating to customers. PRICING: In international marketing mix company has to consider the additional aspects of pricing, which includes, transportation cost, import duties and tariffs, fluctuations in exchange rates, income levels of the international target market, transactions in currency, and economic and political stability of the country. With the global challenges and intense price wars from the competition, internet has made even more demanding to set the suitable prices as people now can have access to global prices and buy products from anywhere around the world. This has led to increase more competition and pricing pressure. The dual pricing strategy is the current pricing strategy of Tesco that is being ruled out throughout, after the failure of “Big Price Drop” strategy. Company now tailors its product prices depending on the income level of the demographic are of Tesco. Company promises to offer lower prices of grocery products than its competitors including Asda, Morrisons and Sainsbury’s or otherwise company will pay the difference (Wildenbeest, 2011). Recently company has cut its prices to half on every grocery product (Tesco, n.d.). MARKETING COMMUNICATION AND PROMOTIONAL STRATEGIES: Executing proper promotional strategy in different countries, either through adaptation or standardization, gives the company an edge over its competitors. Advertising is the most influential way to spread the message out, but its sensitivity differs from country to country as it entails the aspects of language, religious practices, cultural values and political climate. For instance, a specific promotional strategy implemented in one country could cause conflicts in another country as it may offense their cultural values. Therefore, promotional strategies should be matched with the religious practices and cultural backgrounds in order to appeal the customers to the greater extent. Tesco has adapted the influencing promotional strategies according to the country’s environment to attract the large number of customers. It has used television adverts as well as DVD adverts over the number of years. Such Tesco adverts have helped the company to develop brand image by decreasing the prices, and thus encourage more customers to come and shop. Besides its adverts, it also offers numerous in-store promotions such as giving more incentives on shopping that worth more than 500 pounds. The in-store promotions are always sound surprising to customers and excite them to shop more. Statements like ‘buy one get one free’, ‘big offer’ or ‘half price’ can increase up the sales by making the customers feel satisfied as they are saving up much money. Another promotional strategy Tesco has used is issuing the Clubcard loyalty scheme in which customers can receive two Clubcard points by spending every 1 pound in Tesco physical stores or online stores and 1 point on 2 pounds of fuel. Numbers of corporate partners are involved in Clubcard activities in order to earn and deliver various rewards. In support of support of customers, Tesco presents wide range of rewards to its customers such as dry cleaning, car maintenance and travel. Providing greater concern to its customers, it gives opportunity to customers to easily convert its points to money, which can be used in the shopping again (Turner, 2012). This concept is not only limited to sales promotion, but company gathers useable data from customers when they make purchases in the stores. However, Tesco also develop the interaction portfolio of the customers which reflects the buying patterns of the customers, how customers value the brand, and then specifically evaluate the differences and similarities between customers in terms of their feedback and buying pattern. In this way, Tesco perform segmentation of its customers and develop focused customer strategies to cater them. DISTRIBUTION AND TRANSPORTATION MANAGEMENT: With the centralized distribution strategy, Tesco is now increasingly working with centralized warehouses and distribution stores using Just-in-time inventory system and purchasing policies. The concept of product concentration is increasing gradually as the distribution processes are turning into less complex systems (Dunn, Mason, Scarff, Towers, n.d.). Tesco consider the geographical location, demographics of the country and then pursue with the proper distribution channel. ETHICAL CONSIDERATION AND CRITICISM: There are frequent human rights issues that are associated with Tesco’s business operations and work conditions and ultimately have attributed to unfair purchasing practices. In recent reports, Tesco has been accused for developing their bargaining power at the top of supply chain. This has created the push down pressure in order to earn higher profit margins and short lead times to the bottom end of global supply chain (Muller, Vermeulen and Glasbergen, 2012). Tesco spend vigorously on its supply chain management to earn unfair distribution of profits margins with the supply chain. CONCLUSION: Tesco is the world’s third largest retailer in the world while serving around 13 countries across the world. With its 177 Tesco Extra, 448 Tesco Superstores, 174 Tesco Metro, 967 Tesco Express, and numerous one stop Tesco stores, it has competitively expanded its operations by implementing effective international marketing strategies (Tesco Plc, 2010). Above all, it has won the confidence of its customers by cutting the prices of the products. Tesco more importantly emphasized upon brand image by creating value through the logic of club cards. Company’s communication strategies have helped the company to improve its operations in order to meet the needs of local customers across the world in a better way. REFERENCES: Berman, B. (2006). Developing an effective customer loyalty program. California Management Review, vol. 49, no. 1, pp. 123. Czinkota, M., & Ronkainen, I. (2012). International marketing. Cengage Learning. Dunn, A., Mason, O., Scarff, D., Towers, D. (n.d.). Tesco: In Switzerland. [online] Available at: http://elearning.sbta.com.au/www/content/lessons/2237/Marketing%20entry%20plan%20for%20Tesco%20in%20Switzerland.pdf (Accessed 13 May 2014). Financial Times (2014). Tesco Plc: Equities. [online] Available at: http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=TSCO:LSE (Accessed 15 May 2014). Ghani, N. 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The RAND Journal of Economics, vol. 42, no. 4, pp. 729-757. Read More