The Business Model of Tesco - Essay Example

? Business in Action written assignment Table of Contents Executive Summary 3 Introduction 4 1.Value Proposition 4 2 Segments 5 3.Customer relationships 5 1.4.Key Activities 6 1.5.Key Resources 6 1.6.Key Partners 7 1.7.Channels 7 1.8.Revenue Streams 8 1.9.Cost Structure 8 Conclusion 8 References 10 Bibliography 11 Appendix 12 Executive Summary The Study has been conducted in lieu to analyze the business model of a company. A business model is believed to be the heart and soul of a business. The study comprises of the depth analysis of the nine key building blocks required to develop a successful business model. The business model of Tesco, the largest the retail firm of UK has been focal point of the study. 1. Introduction A successful business model can be defined as the way an organization creates; delivers incarcerate value to the customers. Experts believe that a successful business model must contain nine building blocks. Those blocks provide thee much required strong base to the business. Those nine blocks include customer segments, channels, and relationships with customer, value proposition, revenue streams, main resources, main activities, main partnerships and cost structure. The study has been conducted to analyze the business model of a company and understand the contribution of the nine blocks to the success of the business. The company to be discussed in this study happens to be Tesco PLC. Tesco PLC is an English multinational retailer. It is believed to be top retail outlet in the UK. The Headquarters of the company is Chesnutt, UK. It is also the third largest retailer in the country, after Walmart and Carrefour. The company has stores in fourteen countries across Europe, Asia, and North America (Chesbrough, 2007, p.45). 1.1. Value Proposition Value proposition block describes the products or services offered by the company. The offerings of the company creates value proposition for Tesco. Both through online and retail stores the company seeks to deliver value by providing a great shopping trip to the customers. One of the core values of the company is that no one tries harder for the customers than Tesco. This is very much visible in the way the company strives to improve the shopping experience. This includes all the key elements including product range, quality, availability, price and even company loyalty schemes. Irrespective of the country the modus operand of the company keeping the customers and their needs into focus remains same when it comes to delivering value (Buttle, 2012, p.107). 1.2. Customer Segments Market Segmentation can be defined as dividing a market in to different parts or group. Market segmentation can be classified as mass segmentation, niche segmentation, segmented marketing, and differentiated segmentation. After analyzing the product mix of Tesco; it can be summed up that the company goes for differentiated segmentation as it offers a wide range of products to the customers. The product mix of the company includes Jewelleries, Sports accessories, Food and groceries, technology and gaming related products, clothing, Baby and Toddler, etc. So, the technology or gaming related products may attract the people belonging to the age group of 18 to 25 (male). The baby and toddlers are targeted towards kids, where as Jewelleries could be targeted towards the female population. Such market segmentation strategy helps the company to reach to different market segments (McDonald, 2012, p.54). 1.3. Customer relationships Managing customer relationships is all about the game of acquiring, satisfying and retaining the customers. Studies have shown that it is five times more difficult to acquire a new customer rather than holding on to an existing one. Studies have also revealed that companies round the globe make 65% of their revenues from existing customers. Tesco seems to be a firm believer of this philosophy. Best way to make customers happy is to listen to them well act accordingly, so that their problems can be solved enhancing the customer experience. In order to listen and respond to the customers the company predominantly uses the social media, especially Facebook and Twitter. Thus the company seeks to provide real time solution to the customer queries and problems. Add to that there are several loyalty schemes provided by the company to make the customers feel good; this effectively acts as a customer retention strategy. 1.4. Key Activities Every business model requires some key activities to ensure that the company delivers value to the customers. The key activities of the company however vary from the one of the business to other. In case of Tesco the key activities could be efficiently managing the overall supply chain, enhancing customer experience (both in store and through the website), constantly improving customer offer. The supply chain management segment will be discussed later. Tesco looks to improve the in store ambiance as well the website ambiance for the customers, as studies have revealed that the store ambiance as well as the website colour, fell etc. plays a big role in influencing customer behaviour. Hence the Tesco team relies on market research and customer feedback to ensure best possible facilities. Innovation is a key element of the overall Tesco business model. The company looks to adapt to the changing needs of the customers. The company constantly looks to bring innovation the offerings as it believes that innovation can bring great degree of convenience among the customers (Wenderoth, 2009, p.10). 1.5. Key Resources Key resources refer to the key assets needed to ensure the success of a business model. Key resources include intellectual property, human resources, financial resources etc. However, at Tesco the greatest asset of the company is believed to the people, the human resource of the company. Tesco believes that great service can make the day of a customer better Tesco core values say that the people of Tesco must treat the customers the way they would like to be treated. Hence in order to provide the best possible service the company looks to ensure that company has the best possible staff to ensure success. The developed programs at Tesco are quite unique and diverse. The main objective of the company when it comes to training and development is to familiarize the staff with values and culture of the people of the country. It is well punctuated by product training to ensure proper knowledge about the products. 1.6. Key Partners The key partnership block describes the relationship of the company with the partners and suppliers. Tesco works with the best suppliers to buy the best possible food, merchandises. The great relationship of the company with the suppliers provides the base for the best possible offerings to the customers. The company works with global as well as local suppliers. The meet the buyer event of the company has been great success to make partnership with the suppliers. A part stocking the products of the suppliers the company also has established private level programs (Kotller, 2001, p.56). 1.7. Channels The channels block describes the way the company communicates and reaches the target market segment to deliver value. The channels refer to the marketing or sales channels. The efficient distribution network of Tesco has been one the key ingredients to the success of Tesco. The first the company forecasts what the customers are likely to buy using sophisticated statistical models. Second, the ordering system of the company provides auto update on the actual buying o the customers. The company plans the distribution process and the network of the distribution channels to increase efficiency. Labour scheduling and transport planning is also an important part in designing the distribution channels. While designing the distribution channel another factor considered by the company is customer convenience. The site research team helps the company to identify best possible sites for the stores. A part from the stores the company has also adopted direct marketing approach as Tesco sells the wide of range of products through the company websites (Brown, 2009, p.34). 1.8. Revenue Streams The revenue stream represents the cash inflow generated by the company from the target market segment. For Tesco, the main source of revenue is selling of the wide range of products to the customers. As far as revenue generation is concerned, Tesco is the largest retailer of UK and third largest retailer in the world. It is ranked alongside the Walmart, largest retailer in the world (Reading, 2004, p.95). 1.9. Cost Structure The cost structure of a company describes the cost incurred by a company to operate the business model. Such costs can be calculated once the key resources and the key activities of the company are defined. Some of the business models of the company are value driven where as some are cost driven. Cost driven companies looks on decreasing the costs whenever possible. However, the business model of the company is purely value driven. The company is less concerned with the cost implications. Rather they focus on creating and delivering value of the customers. They characteristics of the value driven model of the company are the high degree of customization offered and premium value propositions (Henry, 2008, p.51). Conclusion To conclude things it can be said that creating a successful business model is the key to the success of a firm. The nine ingredients discussed in the study lays the much desired foundation for creating a successful business model. Tesco is a prime example how a company can be benefited from a well planned business model. The key to the success of the business model of Tesco is the customer centric approach of the firm as customers and their needs are at the focal point of the business model. References Brown, L. 2009. Marketing and Distribution Research. Ronald Press Company: US Buttle, F. 2012. Customer Relationship Management. Routledge: UK. Chesbrough, H. 2007. Open Business Models: How To Thrive In The New Innovation Landscape. Harvard Business Press: US Henry, A. 2008. Understanding Strategic Management. Oxford University Press: UK. Kotler, P. 2001. Marketing Management-The Millennium Edition. Prentice Hall of India. Pvt. Ltd: India. McDonald, M. 2012. Market Segmentation: How to Do It and How to Profit from It. John Wiley & Sons: UK. Reading, C. 2004. Strategic Business Planning: A Dynamic System For Improving Performance & Competitive Advantage. Kogan Publishers: US. Wenderoth, M. 2009. Particularities in the Marketing Mix for Service Operations, GRIN Verlag: DE. Bibliography Gilbert, D. 2003, Retail Marketing Management, 2/E. Peasrson Education: India. Nargundkar, R. Marketing Research, Tata McGraw Hills Private Limited: India. Appendix Business Model Building Blocks Description Value Proposition Wide Range of Services, Timely delivery, customer loyalty schemes Customer Segment Diverse group of customers through differentiated marketing strategy Customer Relationship Customer Loyalty schemes, Use of Social Media t provide real time solution Key Activities Over all supply chain management, constantly improving customer offerings Key Resources Human Resources are treated as the key asset Key partners Suppliers in different countries Channels Distribution centres as well as online medium used for direct marketing Revenue Streams Selling wide range of products including supplier’s brand as well as private label brands Cost structure Tesco business model is mainly value driven Read More